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Thursday, January 27, 2022

Vodafone opts for equity-linked rescue, Govt will own 35.8%

🔴 Following the conversion into equity, the Indian government is expected to hold about 35.8% of the total outstanding shares of Vodafone Idea. Promoter shareholders Vodafone Group would hold around 28.5% and Aditya Birla Group around 17.8%.

Written by Aashish Aryan | New Delhi |
Updated: January 12, 2022 12:47:40 am
Vodafone Idea, a combination of the India unit of Britain's Vodafone Group and Idea Cellular, has paid the government 78.54 billion rupees in government dues, but still owes roughly 500 billion rupees.

DEBT-LADEN private telecom operator Vi on Tuesday said it would accept the option offered by the Department of Telecommunications (DoT) to convert interest on deferred spectrum auction payments and adjusted gross revenues (AGR) to equity.

In its release to the exchanges, Vi said the net present value of interest related to spectrum auction dues and AGR would come to around Rs 16,000 crore. Since the average price of Vi’s shares on August 14, 2021, which the Supreme Court decided would be the cut-off date, was below par value, the company would issue shares to the Government at par value of Rs 10 per share.

As a result, the Government would end up owning 35.8% of total outstanding shares of the company while the shareholding of current promoters, Vodafone Group and Aditya Birla Group, would fall to 28.5 per cent and 17.8 per cent, respectively.

Currently, Vodafone Group owns close to 45 per cent of Vodafone Idea, while Aditya Birla Group owns roughly 28 per cent stake.

By another resolution, the current promoters also agreed to amend the shareholder agreement and brought down the minimum qualifying shareholding threshold from 21 per cent to 13 per cent.

This means that both Vodafone Group and Aditya Birla Group will continue to hold rights to make important decisions about the company, such as appointment of directors and other key officials. It is not clear yet if the DoT, which will become the largest shareholder, will get the power to appoint executives to the Vi board.

The option to convert interest on deferred spectrum auction payments and AGR dues was a part of the telecommunications reform package approved by the Union Cabinet last September. One of the major reforms, which aimed at alleviating the pain of the sector and providing immediate relief to debt-laden companies, was the decision to provide a four-year moratorium on payment of all dues arising due to the Supreme Court’s September 1, 2020, order on AGR.

This meant that telecom companies could opt to pay the principal, the interest, and all other penalties, as decided by the top court, after four years, instead of immediately. As a one-time opportunity, the Government also gave telecom service providers the option to convert the interest on this deferred payment into equity at the end of the four-year period.

Among the private service providers with major deferred spectrum auction and AGR dues, Bharti Airtel has opted not to take the interest-to-equity route even as it has opted for the four-year moratorium. Reliance Jio Infocomm had in October informed the DoT that it would not opt for the four-year moratorium altogether.

Other than these two, Tata Teleservices (Maharashtra) also informed the exchanges on Tuesday that it would opt for the interest-to-equity conversion, which would end up giving the Government 9.5 per cent of the total outstanding shares of the company.

Vi, which is reeling under debt in excess of Rs 2 lakh crore, has been looking to raise funds from investors for quite some time. The Government’s offer of deferred payment of AGR dues came as a major breather for Vi, which owed the DoT more than Rs 58,000 crore in this category alone.

With Vi opting for conversion of its interest to equity, it is likely to free up the company’s funds for expansion. The company will now look to invest the funds made available into building long-term capabilities and invest in newer technologies such as 5G.

Most analysts believe that despite all these measures, the key to Vi’s survival would be its ability to raise fresh funds in the near term to meet cash flow needs.

In a report, Credit Suisse said that only a substantial improvement in the operating performance would help Vi “come out of this precarious situation”, and added that it had not “seen enough evidence for the sustained operational improvement”.

Some analysts believe that the regulatory pressures on Vi could ease now as the Government comes on board as a majority stakeholder, while also opening the channel for better regulatory measures.

“Bharti (Airtel) and (Reliance) Jio will need to be careful to not offend the Government with fierce promotions that undermine Vi. Better to compete on quality of service than price. The Government as owner of a large portion of the industry will be getting more feedback on the economic impact of its policies, and will probably be more sensitive to policy impact on operators,” said Deutsche Bank Research in a note.

Shares of Vi closed the day 20.5 per cent lower at Rs 11.80.

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