Vodafone Idea shares jumped 10% on Tuesday after the government announced it will buy shares of value Rs 36,950 crore from the company to pay off outstanding spectrum auction payment dues. The move will raise the government's holding in Vodafone Idea to 48.99%, almost two times its current holding.
The share price rose to Rs 7.49 on the BSE, its upper circuit limit, while on the NSE, it hit Rs 7.48, the highest trading limit allowed for the day.
The government currently owns a 22.6% stake in the troubled telecom company and is the largest shareholder. Through the acquisition, the government's holding will be more than the combined holding of Vodafone Idea's promoters, Vodafone and the Aditya Birla Group, who own 14.76% and 22.56% stakes, respectively.
The Ministry of Communications declared that, as per the September 2021 Telecom Sector Reforms and Support Package, the government will equitize Vodafone Idea's pending spectrum auction dues. The government will receive 3,695 crore equity shares of face value Rs 10 each at an issue price of Rs 10 per share. This conversion will occur within 30 days of receiving requisite approvals from concerned authorities, such as the Securities and Exchange Board of India (SEBI).
After the issue of shares, the government holding in Vodafone Idea will increase to about 48.99%. Nonetheless, the control of the company will remain with the promoters.
This action is an important and timely show of support from the government, offering valuable cash flow relief to Vodafone Idea over the next three years, as stated by brokerage firm Citi. It also sets the company up to raise its long-pending bank debt, strengthening its balance sheet.
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