Govt gets 33% stake in Vodafone Idea, promoters to invest as well

Centre clears Rs 16,133-crore dues conversion into equity

After a long wait, Vodafone Idea (Vi) has been able to secure a lifeline as the Centre on Friday approved the conversion of the telco’s dues linked to interest on spectrum and adjusted gross revenue (AGR) worth Rs 16,133 crore into equity. With this, the government will have a 33 per cent stake, making it the biggest shareholder in the financially-stressed telecom joint venture between UK’s Vodafone and Kumar Mangalam Birla-owned Aditya Birla Group.    

The development comes nearly 13 months after the Vi board cleared the interest conversion. Even as the Union Cabinet had cleared a telecom package including conversion of dues into equity in October 2021, the government had recently put a condition that promoters of Vodafone Idea must infuse funds into the telco before any equity conversion could take place.

Late on Friday, Communications Minister Ashwini Vaishnaw told Business Standard: ‘’The Birlas have agreed to manage the telco while committing necessary investments to take the company forward.’’ The investments could come either from the Birlas or along with partners, the minister said. ‘’We have decided to convert the dues into equity,’’ Vaishnaw confirmed.

A top official, aware of the developments, pointed out that the demand by the government that the promoters of Vi put in fresh capital into the company, which was the main point of contention, had now been resolved.

‘’The promoters have agreed to inject fresh capital into the company,’’ the official said without elaborating on the details. 

In a stock exchange notification, Vi said the Centre had passed an order directing the company to convert the net present value of interest related to deferment of spectrum and AGR dues into equity for the government. The company has been directed to issue 16,130 million equity shares at an issue price of Rs 10.

Vi’s stock price closed at Rs 6.89 on Friday.

No shareholder approval would be required for the issuance as it follows a government order. Company executives believe that this would help them tie up fresh funding to clear pending dues and investment in 5G network.

The government will hold 33.14 per cent stake in Vi making it the largest single shareholder. Its stake will reduce to 32.09 after issue of shares to ATC Telecom Infrastructure Ltd. The promoter holding in the firm will reduce from existing 74.99 per cent to 50.36 per cent and further fall to 48.76 per cent after stake issue to ATC.

The share issue has been hanging for the past several months with the government linking the move to infusion of funds by Vi’s two promoters – Aditya Birla group and Vodafone group plc. Lenders too adopted a wait and watch mode holding back fresh funds in the absence of government stake in the company.

Without naming Vi, SBI chairman Dinesh Kumar Khara said the company is honouring commitments. “As far as income recognition is concerned it is a performing asset. But we are mindful of stress and wherever required we ensure that we should start building provisions,” Khara said prior to Vi’s announcement.

The Vi board decided to issue a stake to the government last January and in April it confirmed the interest amount to be converted following discussions with the telecom department. Vi has not heard from the government on share issuance, the company’s CEO Akshaya Moondra had told investors back in November.

While Birla reportedly met Vaishnaw to raise concern, pressure built up from the UK end too. The UK India Business Council wrote to the government that if this issue wasn’t resolved soon it would have negative implications for the company and overall investment climate in India.

In October 2021, the Union Cabinet had cleared the telecom reforms package aimed at improving liquidity and ease of doing business. Telecom companies were offered the option of four-year moratorium on spectrum and AGR dues and granted an option to convert interest on deferred liabilities into equity.

(With additional reporting by Subhayan Chakraborty in New Delhi)