Bharti Airtel says “No” to Convert Interest on SUC Into Equity

As part of the relief package for telecom companies, the government had announced 2 important changes. Firstly, it offered a moratorium on payment of Spectrum Usage Charges (SUC) and AGR charges for a period of 4 years.

The second relief offered was that the outstanding AGR charges and SUC charges could be converted into equity. While Airtel had accepted the offer for moratorium it had been non-committal about the conversion offer at that point, as it had time till the end of December 2021 to communicate its decision to the government.

Bharti Airtel had accepted the payment moratorium way back in September but had held back its final decision on the subject of converting the interest component into equity. Bharti has now conveyed to the government that it would not be keen to swap the interest component into equity stake in Bharti Airtel.

The relief package had announced the 4 year moratorium on AGR charges and on spectrum usage charges (SUC) subject to the condition that the interest at the extant rates will be payable on the outstanding amount for the moratorium period.

Check - Bharti Airtel also signs for 4-year moratorium

At that time, Bharti Airtel had decided to avail the moratorium, even if meant paying interest, as the cash flow saving would allow Bharti to channel their funds into immediate productive requirements including the required hardware and software investments.

The relief package announced by the government also included a more favourable shift in the definition of AGR charges to exclude not-telecom revenues with prospective effect. In addition, the government also announced that 100% FDI would be permitted through the automatic route as against the current 74%.

The reason for not accepting the equity conversion was that such a move would have either resulted in loss of control or additional equity issue which would have resulted in dilution of the EPS of the company and hence the valuations.

Bharti recently concluded its Rs.21,000 crore rights issue which received a very solid response from the investors. Hence Bharti Airtel is now confident that it can raise the necessary resources at that point of time to pay the AGR charges to the government once the moratorium period is over.

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Telecom Relief Package