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Idea Cellular may raise up to Rs 56 billion to pare debt, says JM Financial

January 04, 2018

According to a report by brokerage firm, JM Financial, Idea Cellular may raise up to Rs 56 billion for debt reduction in a rights or preferential share issue to its current promoters, the Aditya Birla Group (ABG). Further, the report stated that the preferential issue price was expected to be Rs 101.5 per share as per Securities and Exchange Board of India (SEBI) rules, which implies a maximum size of Rs 56 billion for preferential allotment of equity to ABG.

JM Financial stated that the fund-raising proposal appears to be driven by its merger conditions with Vodafone India, and not by immediate cash crunch or any covenant breach. Idea Cellular and Vodafone India are awaiting the final approvals for their $23 billion merger. It added that the operator can fund the second half of the financial year through March 2018 from its cash balance of Rs 28 billion along with an operating cash flow of Rs 3-4 billion per quarter. Further, the proceeds from its tower sale to American Tower Corporation for Rs 4 billion should bridge the negative free cash flow through the first half of the financial year 2019, the report said. Moreover, JM Financial stated that a preferential issue will reduce the free float of Idea after its merger with Vodafone India. The current free float of Idea stock is 57.6 per cent including around 20 per cent owned by Axiata, which would halve to 28.8 per cent after the merger. The brokerage firm added that to bring down free-float to 25 per cent as mandated by SEBI will require 13.2 per cent dilution or a 15.2 per cent increase in equity base or an issue of approximately 550 million shares on current equity base of 3.61 billion Idea shares.

Earlier, in a regulatory filing, Idea had stated that its board would meet on January 4, 2018 to consider a proposal of fundraising, through preferential allotment, qualified institutional placement, rights issue or such other route as the board of directors may determine.



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