British telecommunications giant Vodafone Plc sold 484.7 million shares, representing an 18 per cent stake, in tower management company Indus Towers through block deals on Wednesday, raising Rs 15,300 crore.
This marked the largest transaction among domestic markets, which saw block deals totalling Rs 28,500 crore ($3.4 billion) on the same day.
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Other prominent deals included Wabco Asia’s sale of Rs 2,194 crore (7.51 per cent stake) in multinational firm ZF Commercial Vehicle Control Systems India (formerly Wabco India), and Fosun Pharma’s 6 per cent equity stake sale in Gland Pharma for Rs 1,754 crore.
In addition, private equity major WestBridge sold a 1.75 per cent stake in AU Small Finance Bank for Rs 845 crore.
This surge in share sales reflects a record year for India’s domestic markets. According to Bloomberg, India leads Asia in block trades and share placements this year, with transactions exceeding $20 billion (Rs 1.7 trillion). This activity is driven by soaring stock prices and substantial inflows into domestic mutual funds.
Following the transaction, Vodafone Plc’s stake in Indus Towers has decreased from 21.5 per cent to 3.1 per cent. Bharti Airtel also announced acquiring 28.95 million shares, increasing its stake in Indus Towers to nearly 49 per cent.
Vodafone Plc said in a note, “The placement raised Rs 15,300 crore (€1.7 billion) in gross proceeds, which will substantially repay Vodafone’s existing lenders concerning €1.8 billion in outstanding bank borrowings secured against Vodafone’s Indian assets.”
JP Morgan highlighted that Indus Towers has a secondary pledge on Vodafone Plc’s original 21 per cent stake, with any residual amount up to Rs 4,250 crore allocated towards Indus Towers’ obligations, directly or indirectly.
The security package agreed upon during the merger of former Bharti Infratel and Indus Towers stipulates Vodafone Plc’s 21 per cent stake as the primary pledge securing a $1.4 billion loan taken in 2019 to participate in Idea’s rights issue.
Vikas Poddar, chief financial officer of Indus Towers, informed JP Morgan analysts that the company has been receiving 100 per cent of receivables from Vodafone Idea (Vi) since January 2023, with collections exceeding 100 per cent in the last two quarters of 2023-24. This has led to some reduction in provisions for doubtful debts.
JP Morgan noted, “While Vodafone’s equity raise can only be utilised for capital expenditure (capex), discussions with Vi are ongoing to settle provided-for dues of Rs 5,400 crore, not vendor payments.”
Indus Towers’ shares fell 3.6 per cent during intraday trading, closing at Rs 334 apiece, while Vi’s shares remained steady, rising 0.3 per cent on Wednesday.
Growth expected
Poddar indicated that elevated capex in the upcoming year would continue to pressure the company’s free cash flow (FCF). However, improved receivables from Vi could potentially enhance FCF and increase the likelihood of dividends in 2024-25 (FY25).
Analysts suggest that an equity infusion in Indus Towers to clear past dues could lead to a special dividend of Rs 15 per share in FY25, considering the company’s dividend hiatus over the past two years due to capex and receivable issues from Idea.
Indus Towers expects sustained growth driven by ongoing 5G rollouts by Airtel and increased tenancies by Vi.
JP Morgan highlighted, “Indus Towers expects growth to come from continued 4G rural rollouts by Airtel in FY25, as well as new tenancies from Vi as it begins deploying capex to close the coverage gap in rural/semi-urban locations.”
Revenue from 5G deployments is also expected to contribute to future growth.
