Uday Kotak on Vodafone Idea’s Rs 2,458 cr deal with Nokia, Erricson – Read the billionaire banker’s post

uday kotak on vodafone idea’s rs 2,458 cr deal with nokia, erricson – read the billionaire banker’s post

uday kotak on vodafone idea’s rs 2,458 cr deal with nokia, erricson – read the billionaire banker’s post

Billionaire banker Uday Kotak has raised eyebrows over Vodafone Idea's decision to settle dues with Nokia and Ericsson by issuing preferential shares. Without directly naming Vi, Kotak referred to the age-old adage "robbing Peter to pay Paul," questioning the wisdom of such financial manoeuvres.

In a statement on a social media platform, Kotak highlighted concerns about financial strategies that involve issuing equity to repay debts, particularly in the case of companies facing financial difficulties. His post reads, “Financial markets create money out of thin air? A model for companies in financial difficulty: issue equity to creditors to repay their debt. If the stock is well traded, the creditor can sell in the market and get paid by investors. What is that story about Peter and Paul?”

According to the Economic Times, Vi's recent announcement to issue 1.66 billion shares at Rs 14.80 each to the European equipment vendors totals up to Rs 2,458 crore, aimed at clearing part of their pending dues.

The decision by Vodafone Idea, as reported by ET, includes a 35% premium over the previous FPO price and imposes a six-month lock-in period on the shares issued. This move, while helping Vi manage immediate financial obligations, has drawn scrutiny for its implications on equity dilution and shareholder interests.

Shares of Vi have shown significant appreciation in the past year, which might have influenced management's confidence in resorting to equity-based debt settlements. Nokia and Ericsson, key suppliers to Vi for network equipment, will hold minority stakes of 1.5% and 0.9%, respectively, post the preferential allotment.

In response to queries, Vodafone Idea justified the move, emphasizing its commitment to enhancing network capabilities crucial for India's digital transformation. The telecom giant highlighted the strategic importance of clearing vendor dues to bolster its capital expenditure for advancing 4G and 5G infrastructure.

"Nokia and Ericsson both have a long-term partnership with VIL, as key suppliers of network equipment, and this preferential allotment will enable VIL to clear part of their outstanding dues. It further bolsters VIL’s capex rollout for building a top quality 4G & 5G network to contribute towards India’s digital transformation," the telco said in a statement in the ET report.

However, such financial manoeuvres are typically associated with startups and companies facing cash flow constraints, signalling potential challenges in Vi's financial health and operational sustainability going forward.

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