To give a tough competition to rival player Reliance Jio, Vodafone Idea has opened a rights issue offer to raise as much as Rs. 25,000 crore. Here is detailed whether or not investors should subscribe to the offer:
First, we will understand
What Is A Rights Issue?
Through the rights issue offer, the existing shareholders of the issuing company are given a dividend of subscription rights for buying additional securities in a company.
Vodafone Idea Rights Issue Details
In the schema of rights issue offer, the company plans to issue up to 2,000 crore fully paid-up equity shares of Rs 10 face value at a price of Rs 12.50 per share.
The issue will remain open till April 24 and the last date for request of split application forms will be April 17.
The promoter groups including Vodafone and Aditya Birla have given consent for participation of up to Rs. 11,000 crore and up to Rs 7,250 crore, respectively, in the issue.
The entitlement ratio is fixed at 87 Equity Shares for every 38 Equity Shares held by the eligible shareholders of the Company on the record date.
Objective Of The Rights Issue:
The strategic rationale for the issue, Balesh Sharma, CEO Voadfone Idea said, "We believe the proceeds from the issue, coupled with monetisation of our stakes in Indus Towers, will allow us to make the required investments in the business to achieve our strategic goals."
Fairly priced at a steep discount of 60% as against the price on March 30
First and foremost the pricing factor which is steeply lower than current market price makes the issue attractive. Nonetheless, Idea shareholders who are considering the offer need to have a longer horizon to stay invested.
Also, as there stands a clause of promoters pledging minimum subscription and also the promise to absorb the entire unsubscribed portion, goes down well.
For reasonable returns, investors need to consider the fact that the telecom industry is capital-intensive and returns are generated over a period of time, so staying put in the offer for 2-3 years will be a decent bet.
Should investors bet on Vodafone Idea Rights issue?
There are mixed opinions on the offer, while one group give a subscribe call to the offer due to its attractive pricing, still another group of experts hail the view that there are other better investment options in the market and just on the pricing factor investor need not put their bets as pricing factor is mid-leading. Also, the telecom industry will continue to face severe headwinds and pressures facing the industry are unlikely to come down in the near future.