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MOSL: VODAFONE IDEA (Buy)-Tiding over near-term liquidity crisis-Rights issue at ~60% discount

VODAFONE IDEA: Tiding over near-term liquidity crisis; Rights issue at ~60% discount, amounts to 70% dilution

(IDEA IN, Mkt Cap USD4.2b, CMP INR33, TP INR40, 21% Upside, Buy)

 

Vodafone Idea (VIL) board has provided the following details on its proposed INR250b rights issue:

• Price:5/share (~60% discount to CMP).
• Dilution: 70% (post issue) at a swap ratio of 87 equity shares for every 38 shares.
• Period of right issue: Opens on 10th April, closes on 24th April 2019. 

Rights issue to support liquidity for next 6-8 quarters

• VIL requires INR600b over the next eight quarters to fund (a) estimated capex of INR326b, (b) spectrum payment liabilities of INR213b and (c) external debt servicing and interest cost. The rights issue of INR250b, along with Idea’s INR50b stake sale in Indus, current cash position, and cumulative EBITDA of INR220b until FY21, will be the sources of funds. Our EBITDA workings include INR78b cumulative opex synergy and revenue-linked benefits (but with market share loss of 4-5% in favor of Jiophone). 

Leverage to remain high

• Despite the huge fund raise and the estimated EBITDA increase to INR126b by FY21, net debt is likely to remain at INR1,060b, with the net debt-to-EBITDA ratio at a steep 8.4x. Thus, the fund-raising would simply support next eight quarters of cash requirements with limited deleveraging.