The government has chosen not to decrease its stake in Vodafone Idea despite potential financial benefits as the business, whose stock has increased dramatically in recent months, prepares to raise funds on February 27.
The government is still the company's biggest stakeholder, with a 33 percent stake, ahead of Vodafone Plc in the UK and entrepreneur Kumar Mangalam Birla's Aditya Birla Group. The government, however, believes that the "time has yet not come to do full or partial divestment" of its interest, particularly because the money the firm would get will be utilized to reduce debt and develop 5G services.
Sources stated that "there are no plans to liquidate the government's holding in the company" and that any decision on this front would be made "only at a later date." The government believes the corporation should decide on an exit strategy only after developing a strong plan for a comeback.
Despite suffering severe losses and about Rs 2.2 lakh crore in debt, Vodafone Idea has experienced a 150% increase in share prices in the last year after the government opted to acquire a stake in lieu of future interest payments that it would otherwise have to pay. Vodafone Idea's shares finished at 17.5 on Friday, compared to a closing share price of Rs 6.85 on February 3, 2018, the day the government entered the market.
This results into a healthy return for the government. Since the Companies Act stipulates that equity can be purchased for no less than the par value, the company took a significant risk when it purchased the shares last year for Rs 10 per piece, even though the market price at the time was Rs 6.85.
In addition to losing users to competitors Reliance Jio and Airtel, Vodafone Idea announced plans for a fund-raise. Analysts believe this is the first step towards a "multi-billion-dollar infusion" for the firm.
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