Investors flock to Vodafone Idea share sale

The troubled telco's share price reflected the positivity around the follow-on public offering (FPO), India's largest to date, which has dominated headlines in recent days. At the time of writing on Tuesday, Vodafone Idea was trading at well over 14 rupees (US$0.17) on the BSE, up from below INR13 ahead of the offer period.

Having secured the support of anchor investors ahead of time, Vodafone Idea ran an offer period from 18 April-22 April with a view to selling INR180 billion ($2.16 billion) worth of new shares in total, the aim being to raise money to fund the build-out of a 5G network, amongst other things. The anchor investors – including big names such as US-based investment firm GQG Partners, Fidelity and Australian Super, to name a few – committed $646 million to the offer and it seems Vodafone Idea picked up the remainder with little difficulty.

Vodafone Idea issued a formal announcement on Tuesday confirming that it had secured all the required approvals from its board of directors, but it did not share much information about the offer process.

However, reports in the Indian press indicate that the FPO went very well indeed.

According the Economic Times, the FPO "sailed through" on the final day of the offer period, the company receiving offers for 6.5 times the number of available shares.

The shares sold under the FPO are expected to list on Thursday.

While it's tempting to view the FPO as the answer to Vodafone Idea's troubles, the situation is more complicated than that. Analysts are expecting a share price hike in the short term – Live Mint indicates as much – but there will be no quick turnaround for the mobile operator.

Vodafone Idea desperately needs the funds to be able to build a 5G network and therefore compete on a more level playing field with its larger rivals, Reliance Jio Infocomm and Bharti Airtel. But the build will take some time; Vodafone Idea recently indicated that it aims to extend 5G coverage to 40% of its revenue base in two or more years. And market watchers have repeatedly stated that they do not expect the telco to pick up any meaningful market share in the coming years. Meanwhile, Vodafone Idea still has other dues to pay.

The successful outcome of the FPO is good news for Vodafone Idea; without it, it would have been in serious financial difficulty and we would have once again been questioning its ability to continue as a going concern. But while the equity raising is a good start, the operator still has something of a mountain to climb.