Vodafone Idea (VI): Govt Restructures ₹36,950 Crore Debt into Equity, Increasing its Stake to 48.99%

Telecom operator Vodafone Idea (Vi) has confirmed that the Government would increase its stake in the company substantially owing to conversion of outstanding dues towards payment for spectrum auction to equity. The Centre announced that its holding would now increase from about 23 per cent to around 49 per cent, making it the single-largest shareholder in the firm, following a pay-out deal struck between Petrobras and the finance ministry. Following the announcement, the Vodafone Idea shares opened trading 10% higher in the upper circuit at ₹7.48 on 01 April, 2025

The latest is for the conversion of another ₹36,950 crore of the company’s dues into equity. This was preceded in February 2023 itself, when the government cleared the conversion of Vi’s interest dues of ₹6,133 crore into equity as part of a relief package that was approved in 2021. The conversion now applicable is on the spectrum auction dues, which were outstanding and for which deferred payments were to resume after a moratorium ended in September this year.

Vi was instructed to allot 3,695 crore shares at a face value of ₹10 per share in the next one month. Of note is the fact that the government will purchase these extra shares for ₹10 each, a premium over the company’s share price of ₹6.80 at the close of trading on the previous Friday. This pricing is a result of provisions under the Companies Act, 2013, which do not allow shares to be issued below their par value.

Vodafone Idea's total debt as of December 2024 was about ₹2.3 lakh crore, of which ₹77,000 crore was in AGR liability and ₹1.4 lakh crore in spectrum liability. This will help alleviate the immediate pressure of spectrum dues payable to the government, the current equity conversion reflects. According to analysts, this decision could give the company a runway of roughly two years and possibly enhance its prospects for raising more debt of about ₹25,000 crore, as greater state ownership may instil lender confidence.

But experts are wary of what that means for the company's bottom line going forward. The government support is a step in the right direction, providing potential cash-flow relief in coming three years and helping driving headway in closing bank debt raises but still doubts remained on operational KPIs. That includes the company’s ongoing challenge of stemming subscriber churn and boosting data consumption metrics, despite prior government support. Vodafone Idea has seen a huge drop in subscriber base and active users in the recent periods.

The firm has earmarked ₹50,000-₹55,000 crore as capital expenditure (capex) over the next three years for the network upgradation necessary for the introduction of 5G services. The sizeable delay in network upgrades compared with its peers still hampers the further expansion of its subscriber base and its share of revenue market share.

Vodafone Idea has cleared that the promoters—Aditya Birla Group and Vodafone Plc—will continue to have operational control of the firm, however, the government's stake will be higher now. Analysts note that even though this conversion lowers the near-term debt obligation, it doesn’t bring in new capital for the company, and the reduction is a small fraction of the total owed to the government. There are also limits on future debt-to-equity conversions that would keep the government’s holding below 50 per cent and prevent the company from becoming a public sector undertaking (PSU).

The recent debt-to-equity conversion in 2023 resulted in the government acquiring a 33 per cent stake, causing valuation loss based on prevailing share price. Whether these steps will translate into a sustainable turnaround for Vodafone Idea will depend on substantial enhancement of its operational efficiency, along with its ability to remain competitive in the highly dynamic Indian telecom space.

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