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Behind Vodafone Idea’s equity conversion move: Mounting debt, eye on long run

Vodafone Idea has opted to convert its adjusted gross revenue dues into equity, resulting in the government owning 35.8 per cent of the total outstanding shares of the company.

Written by Aashish Aryan , Edited by Explained Desk | New Delhi |
Updated: January 12, 2022 7:36:16 am
A customer enters a Vodafone store in New Delhi. (Reuters Photo/File)

Vodafone Idea on Tuesday informed the exchanges it would be opting for the government’s offer of paying interest for the 4 years of deferment on the spectrum instalments and adjusted gross revenue dues by way of conversion into equity of the net present value of such interest amount.

It also said that on conversion of the said interest to equity, the government would own 35.8 per cent of the total outstanding shares of the company.

What is the government’s offer on conversion of pending interest and dues to equity?

In the telecom reforms approved by the Union Cabinet in September last year, one of the major decisions that was aimed at providing immediate relief to debt-laden companies such as Vi, was the decision to provide a four-year moratorium on payment of all dues arising due to the Supreme Court’s September 1, 2020, judgment on adjusted gross revenue (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 paying it then. The government had also given all the telcos a one-time opportunity to convert the interest on this deferred payment into equity at the end of the four year period.

Why is Vi opting to convert the interest on deferred payment to equity?

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 adjusted gross revenue dues came as a major breather for Vi, which owed the Department of Telecommunications (DoT) more than Rs 58,000 crore just as AGR.

Though the company has managed to raise some short term loans, it has so far not been able to get fresh long term funds, which may help the company sustain in the long run. By opting to convert the interest on deferred payment, the company will look to invest the freed funds into building long term capabilities and invest in newer technologies such as 5G.

Will Vi become a government-owned company now?

Vi has said the net present value of the interest related to spectrum auction dues and AGR would come to around Rs 16,000 as on date. Since the average price of Vi’s shares on August 14, 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.

This would therefore mean that the DoT would become the largest shareholder with 35.8 per cent holding in the company, while the holding of the Vodafone Group would be reduced to 28.5 per cent and that of the Aditya Birla Group would be cut down to 17.8 per cent.

This, however, does not mean that the government will be able to take any executive decisions about the company.

By another resolution, the current promoters have also agreed to amend the shareholder agreement and have 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, among others. The government will continue to remain the largest shareholder without the ability to exercise executive rights.

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