Vodafone Idea FPO fully subscribed: now what?

Vodafone Idea FPO fully subscribed: now what?

Indian operator Vodafone Idea's much heralded Rs18,000 crore (about US$ 2.2 billion at current exchange rates) follow-on public offer (FPO), India’s biggest, was fully subscribed by its third day, according to local news reports.

It’s positive news for the cash-strapped operator. Indeed press reports indicate that many analysts recommended subscribing to the FPO, based on the belief that the availability of more funds after the share sale would improve the operator's prospects.

Certainly a number of global institutional investors showed strong interest in the FPO. According to India’s Economic Times news service, the qualified institutional buyers (QIBs) portion was subscribed 1.23 times, while the non-institutional investors (NIIs) portion was subscribed 1.93 times and the retail segment hit 42%.

As we reported last week, Vodafone Idea has also raised Rs 5,400 crore (about $648.5 million) from 74 anchor investors. The share price has rallied as a consequence.

But will this be enough? The current fund raise and plans for debt financing will give Vodafone idea breathing space and enable it to improve its 4G offering and start to roll out 5G – albeit it will be a long way behind operators Reliance Jio and Bharti Airtel, which are now actually offering 5G services,

It also needs to find cash to pay off its spectrum and AGR payments when they become due in the 2026 financial year and beyond.

Indeed analysts quoted by the Economic Times suggest that a sharp increase in mobile tariffs will also be required to boost Vodafone Idea’s finances. However, tariff rises haven’t happened in India since a 20% rise in December 2021, even though there has been high capital expenditure by Vodafone Idea’s rivals during their 5G rollout.

That said, the Economic Times suggests that Jio and Airtel are looking at separate tariff plans for 5G connectivity in a bid to improve average revenue per user (ARPU). Whether this will help or hinder Vodafone idea remains to be seen.

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