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Govt becomes largest shareholder in Vodafone Idea: how, why now?
The government gave the green light to convert Vi's interest dues worth more than Rs 16,000 crore into equity after receiving an assurance from Vi’s promoters that they would infuse additional capital
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The Union government on Friday (February 3) cleared a long-awaited plan to convert Vodafone Idea’s (Vi) interest dues worth more than Rs 16,000 crore ($2 billion) into equity, paving the way to become the single largest shareholder in the cash-strapped telecom company.
What held back the equity conversion for so long?
Vi had been awaiting the move ever since the government announced a relief package for the telecom sector in September 2021, allowing it to convert interest on deferred adjusted gross revenue owed to the government into equity.
The delay in implementing this plan had left the troubled telco in a Catch-22 situation — the government was understood to be unwilling to move the needle on equity conversion until the telco received additional funding, and investors were understood to be waiting for the government to move first.
So, what has changed now?
The government gave the green light after receiving an assurance from Vi’s promoters that they would infuse additional capital into the company — smoothing out a key obstacle.
Union Minister of Communications Ashwini Vaishnaw Friday said: “We had sought a firm commitment that the Aditya Birla Group would run the company and bring necessary investments. Birlas have agreed and hence we have agreed to convert. We want India to be a three-player market plus BSNL and ensure healthy competition for consumers.”
How will the equity conversion work?
In a regulatory filing Friday evening, Vodafone Idea said: “Ministry of Communications, Government of India has, in line with the Reforms and Support Package for Telecom Sector communicated earlier and the conversion option exercised by the Company as provided for therein, passed an order today i.e. 3 February 2023 under section 62(4) of the Companies Act, 2013, directing the Company to convert the NPV of the interest related to deferment of spectrum auction installments and AGR Dues into equity shares to be issued to the Government of India”.
“The total amount to be converted into equity shares is Rs. 16133,18,48,990. The Company has been directed to issue 1613,31,84,899 equity shares of the face value of Rs. 10 each at an issue price of Rs 10 each,” it added.
Why did Vodafone Idea need bailing out?
Reeling under a debt burden of over Rs 2 lakh crore, Vi had opted to convert more than Rs 16,000 crore of interest liability payable to the government into equity. This will amount to around a 33 percent stake in the company. The promoters’ holding will come down to 50 percent from 74.99 percent.
In January this year, Union Minister Vaishnaw called the process “complex” and said that the telco would need capital infusion from multiple sources, not just conversion of its interest dues on statutory payments. “Vodafone Idea has many requirements. It has a particular requirement for capital. How much capital, and who will infuse? All those things are under discussion at this point. The responsibility of the capital will have to come from various sources… All those are complex issues,” Vaishnaw had said at the time.
The latest development, however, solves only a part of the problem for Vi. Two years back, Vi had approved plans to raise Rs 25,000 crore. Of this approved amount, the company has been able to raise Rs 5,000 crore from the promoters.
Also, Vi’s proposal to settle dues of Rs 1,600 crore with equipment vendor ATC Telecom Infrastructure through the issue of equity-convertible debt bonds has already lapsed once. This was because the issuance of bonds to ATC was subject to the conversion of interest dues into equity by the government.
Analysts said that the government order to convert the telco’s dues into equity could encourage investors to infuse capital into the company.
As of September, Vi had a net debt of around Rs 2.2 lakh crore. The company’s dues to banks and other lenders totaled Rs 15,080 crore.
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