Vodafone Offers Reassurance After Shares Crashed 21% On Bailout News

Vodafone Idea has said that government does not want to actively run the loss making company

Vodafone Idea Ltd. said government doesn’t want to actively run the unprofitable phone operator after its board approved a rescue plan that made the state its biggest shareholder with a 36 per cent stake in the company.

“They do not have to desire to take over the operations of the company,” Ravinder Takkar, managing director and chief executive officer of Vodafone Idea, told reporters on Wednesday. “They want three private players in the market, they want promoters to run this company,” he said, referring to a widely used term in India for founding and controlling shareholders.

Takkar’s comments sought to reassure investors and Vodafone Idea’s shares rose 11% in Mumbai trading on Wednesday after the bailout news prompted a 21 per cent drop the previous day. The restructuring will not only result in dilution for all existing shareholders of the company including the founders, but also removes the need for any immediate cash outgo from the beleaguered wireless operator, a joint venture between the U.K.’s Vodafone Group and Indian billionaire Kumar Mangalam Birla’s conglomerate. Both will now become significant minority shareholders in the firm. 

Birla stepped down as non-executive chairman of the company in August, whose survival was being threatened by the government’s claim of back dues. The rescue measure is now meant as a stopgap measure for the company that’s been losing customers in droves after a brutal price war was sparked in 2016 when Mukesh Ambani, Asia’s richest man, entered and upended India’s telecom market. Many private phone operators exited the market, merged with rivals, or filed for bankruptcy after Ambani’s Reliance Jio Infocomm Ltd. lured away subscribers with cheap data and free calls. 

‘Stay Healthy’

“Promoters have accepted significant dilution actually to support the balance sheet of the company, promoters want the company to stay healthy,” Takkar said. He said there is no condition that allows India’s government to nominate a board member, adding “the government has no intention to have a board member.”

Vodafone Idea announced plans in 2020 to raise as much as 250 billion rupees ($3.4 billion) to help the company win airwaves in a planned spectrum auction as well as boost its telecom infrastructure. It was hopeful of being able to raise funds after the relief package from the government, but the company hasn’t had much success so far.

“Vodafone Idea has been engaged with investors for several months,” Takkar said. “There is a huge interest from international investors,” he said, adding the conversion of equity should be a positive sign for investors and fund raising process.

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