The combined entity is however stuck at paying their individual past debts, which is a compulsion to get a nod for the merge from the government
Shareholders of Idea Cellular have approved the name Vodafone Idea for the soon-to-be combined entity of Vodafone and Idea. The entity is expected to own almost 42 per cent and 37 per cent of the telecom industry’s customer market share and revenue market share, respectively.
An eye to top the telecom industry
Both Idea and Vodafone had fallen behind Airtel and Reliance JIO in providing 4G services and voice-over LTE services to their customers therefore, it is thought that Vodafone-Idea will improve their services of the mentioned areas. In fact, gaining new customers and sustaining them in the wave of competition in the telecom industry has been a real task for both Vodafone and Idea and as an entity, it will look to work on these areas and encourage new subscribers.
Once Vodafone and Idea merge into one entity as Vodafone-Idea, it is expected that it gains approximately 430 million mobile subscribers from the first day itself.
After the merger, it is assumed that Vodafone will be holding 45.1 per cent of the shares while Idea shareholders and Aditya Birla Group will be holding 28.9 and 26 per cent, respectively. This will make Vodafone-Idea as the biggest telecom company.
Merge will not be approved if past debts are not cleared, says DoT to both the telcos
After the announcement of the merge in March 2018, it was anticipated that the merger will be finalised by the end of June 2018 but debt charges that are yet to be cleared by both Vodafone and Idea has added more time to the final settlement. The name of the combined entity – Vodafone-Idea, will only become official once the same has been approved by the Department of Telecommunications (DoT) before passing on to the registrar of companies (RoC) for official filing.
DoT has raised a fresh demand for Vodafone to clear debt charges of Rs 4,700 crore as part of its one-time spectrum charges. Now, Vodafone has to either pay the charges or offer bank guarantee prior to merging with Idea.
Idea Cellular has its own share of debt amount as well. In fact, DoT is all set to raise demands for both the telco parties. For Idea, it has to be double-payment because in addition to their own charges, according to merger and acquisition rules, they have to pay certain charges on behalf of Vodafone as well. DoT is in the process of recalculating the total amount of debt charge on the combined entity, but it is assumed that it might be over Rs 11,000 crore and Idea’s share is one-fifth of the same.
In 2015, after DoT first raised demands to Vodafone to clear dues, the telecom company had to pay Rs 6678 crore. It was then that four subsidiaries of the company – Vodafone South, Vodafone East, Vodafone Cellular and Vodafone Digilink with Vodafone Mobile services were combined into one, which is now known as Vodafone India. This merge cleared off Rs 2000 crore for Vodafone and DoT has asked the company to pay the remaining amount before the merge with Idea.
How Vodafone and Idea are raising funds for paying their debts?
Both Vodafone and Idea have strategised plans to raise money via non-convertible securities in order to pay their debt charges and in return, win approval from DoT for their merge. Idea shareholders have given their nod to both the telco giants to raise Rs 15,000 crore funds. Of this amount, Idea has already raised Rs 6750 crore from promoters and private placement of shares this year alone. Also, both Vodafone and Idea have sold their captive towers to American Tower Corp for Rs 7850 crore that will get converted to more funds for the operators in the future.
