Vodafone Idea to sell $2 billion worth of shares to fund 5G

The troubled Indian telecoms operator has been working on an equity fund raising plans for the past couple of months and its board has now approved a follow-on public offering (FPO), to take place later this month, that will bring in up to 180 billion rupees (US$2.16 billion).

The offer period for the new shares will run from 18 to 22 April, with shares priced at INR10-INR11 each and available in multiples of 1,298. That doesn't give would-be investors a lot of time to prepare, but rumour has it that there are already some big names waiting in the wings.

On Friday Reuters reported that investment firm GQG Partners and State Bank of India Mutual Fund are both considering investing in Vodafone Idea, the former looking to spend around $500 million and the latter somewhere between $200 million and $300 million. It cited a couple of unnamed sources familiar with the matter, but noted that the investors themselves had declined to comment, as did the telco.

There is no question that the telco needs the money. Vodafone Idea, which operates as Vi, has been struggling since it was created through the merger of Vodafone India and Idea Cellular in 2018. It owes money to the government and to its suppliers, and its customer base is in what appears to be a terminal decline; indeed, on that last point, Money Control on Monday quoted analysts from Kotak Institutional Equities as saying that the FPO is a positive move for Vi in the short term, but that they do not expect it to gain any meaningful market share from its peers.

The latest data from the Telecom Regulatory Authority of India (TRAI) shows that Vodafone Idea had 18.9% share of the Indian mobile market as of the end of February. That's less than half the combined market share of Vodafone and Idea Cellular at the time of their merger, and represents a loss of almost a percentage point in the previous six months alone.

Reversing that decline may well be too big an ask for Vodafone Idea, but it does need to stem customer losses going forward if it is to survive. And to do that it will need an operational 5G network.

To date, India's 5G market has been cornered by market leader Reliance Jio Infocomm and second-placed Bharti Airtel, both of which launched services 18 months ago. Last summer the Indian government approved a third bailout package worth around US$11 billion for state-run BSNL that should help it rollout 4G and 5G networks, although it is not expected to make inroads into 5G until next year.

Meanwhile, Vodafone Idea has been promising 5G for some time, but with no real statement of intent as to when it will actually launch commercial services.

The FPO could change that.

When it first shared plans for an equity fund raising back in February, Vodafone Idea focused on the potential benefits for network rollout, preferring not to mention that it has bills to pay too.

"The equity and debt fund raising will enable the Company to make investments towards significant expansion of 4G coverage, 5G network rollout and capacity expansion," the operator said, in a statement, at the time. "These investments will enable the Company to improve its competitive positioning and offer an even better customer experience."

There's a strong whiff of desperation in that statement. But if Vodafone Idea is to have any chance of turning things around then it will need to move quickly. This share sale is starting to feel like the last throw of the dice.