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Indian government will soon be a majority stakeholder in Vodafone Idea

Strapped for cash, Vi opted to turn over equity while its competitor Airtel remains confident of repayment.

Vodafone

Vodafone Idea’s Board of Directors has approved the conversion of the full amount of interest arising out of the company’s spectrum auction installments and AGR (Adjusted Gross Revenue) dues into equity, as per a regulatory filing with the National Stock Exchange. It means that the Indian government will now be a stakeholder to the tune of 35.8 percent in India’s third-largest telecom company.

The filing revealed that the Net Present Value (NPV) of the interest is around Rs.16,000 crores, according to the estimates of the company. It also added that after the conversion, Vodafone Group will hold around 28.5 percent and the Aditya Birla Group will hold around 17.8% respectively.

This rescue plan was crucial for Vodafone Idea, which has been losing customers to bigger rivals, Bloomberg explained in its report. It affected the company’s financial health as the price war, started by Reliance Jio, in 2016 precipitated severe loss of revenue.

Why did Airtel reject the path of conversion?

Bharti Airtel, like Vi, also opted for the four-year moratorium on AGR and spectrum dues last year but decided to not opt for conversion of interest on deferred spectrum and AGR dues into equity last week, according to Moneycontrol.

One of the analysts Moneycontrol spoke to suggested that “the move hints at the company’s intent to prepay the deferred due early and not dilute the existing shareholders in favor of government equity”.

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“This decision is a show of confidence by the company to be able to bear the liabilities early in the future and avoid the interest or equity burden. Investors should welcome this move, but there would be increased scrutiny on execution given that the company has taken this decision now,” Sonam Srivastava, Founder, Wright Research, was quoted as saying.

Bharti Airtel has already paid Rs 18,004 crore in AGR-related dues to the telecom department by March 31, 2021, which is more than 10 percent of its total statutory dues of over Rs 43,000 crore, Moneycontrol added.

Understanding the terms of DoT’s relief package

Vi’s conversion of pending dues was first proposed as part of a relief package announced by the Department of Telecommunications last year. It permitted telcos to defer spectrum auction and AGR dues payments by four years. However, it said that interest would continue to accrue on the outstanding payments.

The department had also communicated to the companies that it was willing to provide a period of 90 days for them to consider the option of converting the interest that would accrue on instalment payment during the moratorium period into equity.

It laid down the following criteria:

  • NPV of the interest amount to be calculated as on the date of exercise of option;
  • Equity shares would be issued to the central government on preferential basis;
  • Relevant date for pricing would be 14.08.2021;
  • The price shall be equal to higher of the average of weekly high and low of the volume weighted average price of the equity shares during the last 26 weeks preceding the relevant date or two weeks preceding the relevant date;
  • It had said that the price would not be less than par value;

Vi explained that the equity shares will be issued to the central government at par value of Rs. 10/- per share since the average price of its shares at the relevant date of 14.08.2021 was below par value.

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