The board of debt-ridden Vodafone Idea is moving ahead with the decision to offer a 35.8% stake in the company to the Indian Government. This comes after the company’s board gave the nod to converting the AGR dues and spectrum instalments into equity in one of the last-ditch efforts to save the cash-strapped company. After completing the process, the Indian Government will become the majority shareholder in Vodafone Idea, with the Vodafone group owning 28.5% and the Aditya Birla group owning 17.8% of the company.
In reaction to the reports, the price of Vodafone Idea’s stock tumbled by 20.88% to Rs 11.75 per share on 11 January, 2022.
In a clampdown on pending dues towards the government, the Supreme Court in September 2020 gave a verdict ordering all telecom companies to clear a minimum of 10% of their AGR dues by March 31, 2021. AGR stands for Adjusted Gross Revenue and is the spectrum usage charges and licensing fee that telecom operators are charged by the Department of Telecommunications.
After a petition by the telcos (telecom companies), and to provide relief to debt-ridden telecom companies like Vodafone Idea, the Government announced a four-year moratorium on the payment of all dues. Meanwhile, Vodafone tried its best to raise funds, but in vain. In the increasingly competitive space, it was also losing subscribers to the more powerful Jio and Airtel even as ARPU rates continued to fall. It was at such a time that a proposal came along – the Government offered a one-time opportunity to convert the dues and interest payments into equity. Vodafone Idea found this a reasonable option.
The company has issued a statement pegging the Net Present Value (NPV) of the interest at Rs 16,000 crore; however, the Department of Telecommunications(DoT) is yet to confirm the same. After the final nod from the DoT, Vodafone idea will issue the equity shares to the Government at par value of Rs 10 per share.
Upon the equity transfer, Vodafone will be free of its government dues burden which has been plaguing the company for long.
There is no doubt that after the materialisation of this offer, the Government of India will become the biggest stakeholder in the company. To retain the decision-making power, the current shareholders of the company will pursue amendment of the shareholding agreement.
As per the new changes, the minimum qualifying shareholding threshold will be brought down to 13% from 21% post the dilution of the shares, subject to the approval of shareholders. As a result, both the Vodafone group and the Aditya Birla group will retain their power of making executive decisions like appointments and daily governing.
The telecom giant has been reeling under insurmountable debt for years and has been looking for investors to raise money for a long time. As of September 2021, Vodafone Idea had a gross debt of Rs 1.94 lakh crore which includes spectrum dues worth Rs 1.08 lakh crore, AGR dues worth Rs 63,400 crore, and bank loans worth Rs 22,700 crore. The current four-year moratorium will mean that the company will save at least Rs 60,000 crore on the payment of AGR dues as of now.
The company will be able to save funds due to the postponement of the interest.
The Indian Government had extended the same offer of converting AGR dues to equity to all telcos, including Bharti Airtel. However, Airtel took the four-year moratorium and quashed the offer to convert the interest dues into equity shares, stating they would clear all dues after the deferment period.
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