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Shares of Vodafone Idea rebounded more than seven percent to Rs 12.65 on the National Stock Exchange today after nosediving 20 percent on Tuesday as the company clarified that the government will not take over the operations of the telecom operator.
Vodafone Idea on Tuesday had said it has exercised the option to convert interest payable for the four years of deferment on the deferred spectrum installments and its adjusted gross revenue dues into equity that will see the government holding a 35.8 percent stake in the company post-dilution.
The exercise of the option and resultant controlling stake of the government sparked fear among investors that the government will take over operations of the company, which could result in a sharp downgrade in price-earnings multiples.
Further, the large dilution of equity in the company at a steep discount of around 32 percent from the Monday’s close price also did not go down well with investors.
“In all my personal interactions with the government, they have been very clear they do not want to run the company and do not want to take over operations,” Ravinder Takkar, managing director and chief executive officer of Vodafone Idea told reporters in a virtual press brief.
Takkar also clarified that the government has not stated any intention to nominate members to the board given that it is now eligible to revamp the board.
“They [government] have made it clear that they want promoters to run the organisation,” Takkar said.
That said, investors were also concerned that the induction of the government as an equity investor could hinder the ability of the company to raise funds from strategic investors.
Some market participants argued that if there was enough interest from investors the company could have directly approached them for funds instead of exercising the option to convert its debt to the government into equity.
“Vodafone Idea’s proposal to issue equity shares to the government exhibits a lack of confidence on large capital-raise in the near term and desirable improvement in cash flows in the medium term,” said brokerage firm Kotak Institutional Equities in a note.
But Takkar claimed that there is huge interest from investors, particularly international ones, to invest given that the sector has finally received support from the government.
Takkar told business news channel CNBC-TV18 that the equity conversion of debt is positive for investors. “Most things that investors want, are happening or have started to happen,” Takkar said.
Takkar also suggested that the debt-to-equity conversion could be positive from the viewpoint of raising funds from the market, and said he hopes to announce the much-awaited capital-raise soon.
