MUMBAI -- Vodafone Idea, India's third largest telecom company, plans to raise up to 250 billion rupees ($3.41 billion) through a mix of equity and debt to build a war chest needed to compete with Reliance Jio Infocomm and Bharti Airtel.
The announcement follows a Supreme Court order on Tuesday that directed telecoms including Bharti Airtel and Vodafone Idea to pay back dues to the government within 10 years. Vodafone Idea, the most affected by the judgment, owes over 504 billion rupees in spectrum usage and other charges to the government.
Industry watchers are looking to see whether the company seeks a tie-up with an investor that can help it stand a fighting chance against stronger rivals.
"Vodafone Idea needed more time because they have their own capital expenditure needs and they are already cash negative," an analyst said on condition of anonymity. "They would need capitalization. They will hope and pray that a strategic investor comes in."
Top Indian telecom Reliance Jio -- promoted by India's richest person, Mukesh Ambani -- is not affected by Tuesday's court ruling because it has already cleared its payment obligation of 1.9 billion rupees.
Vodafone Idea shares closed down 4.38% at 12.01 rupees on Friday. Bharti Airtel ended 2% lower at 523.10 rupees.
"We are looking at a virtual duopoly of two strong players, and a weak player who will not move the needle much," the analyst added. "For Vodafone Idea, it will be a tough ride, while for Bharti Airtel it will be a decent ride and will survive strong."
The stock market appears to agree with this view. Vodafone Idea sank 12.8% in trading Tuesday, while Bharti Airtel gained 6.4%. Shares of Jio parent Reliance Industries were up a modest 0.4%.
Vodafone's board on Friday approved a proposal to raise up to 150 billion rupees through a public or private securities offering, which could include equity, foreign-currency convertible bonds or other options. It will also issue up to 150 billion rupees of nonconvertible debentures, with the total fundraising not exceeding 250 billion rupees.
The government dues, which were partly accounted for in Vodafone Idea's April-June quarter earnings, pushed the company to post its biggest-ever net loss of 254.67 billion rupees. The company has also reported a negative net worth, as its cash and cash equivalents stood at 34.5 billion rupees, while its net debt was at 1.16 trillion rupees.
The fresh fundraising is expected to help the company strengthen its position in terms of capital spending on network expansion and wireless technology.
According to an report by local newspaper Mint on Thursday, the company is in talks with Verizon and Amazon seeking investment of over $4 billion for a stake. Vodafone Idea denied the report.
"As part of corporate strategy, the Company constantly evaluates various opportunities for enhancing the stakeholders' value. .. Currently, there is no proposal as reported by the media that is being considered at the Board," the company informed India's stock exchanges.