Vodafone Idea to convert govt dues into equity; stock slumps. All you need to know

The government could end up as the single-largest shareholder in the beleaguered Vodafone Idea Ltd, India’s third-largest telecom company, which has been teetering on the brink of collapse for a while now. 

This comes after the company’s board informed the telecom department that it will opt for converting the interest on spectrum and adjusted gross revenue dues into government equity. 

So, how much stake will the Indian government end up owning in Vodafone Idea?

The government will end up owning a 35.8% stake in the company, becoming its single-largest shareholder. 

What about the promoter shareholding?

The company said in a filing on the stock exchanges that the UK’s Vodafone group will end up with a stake of 28.5% while India’s Aditya Birla group will have a 17.8% interest in the company following their stake dilution.

This effectively means that the promoters will together have a 46.3% stake in the company. 

How much money does the company still owe the government, which it is now converting into equity?

Vodafone Idea had past AGR dues of Rs 58,254 crore. Of this, it had paid Rs 7,854 crore. 

The mobile-phone operator said the Net Present Value (NPV) of the spectrum interest is expected to be about Rs 16,000 crore, as per its best estimates, subject to confirmation by the telecom department.

At what price will the government get the company’s shares?

Since the average price of the company’s shares at the relevant date of Aug. 14, 2021 was below par value, the equity shares will be issued to the government at par value of Rs 10 per share, subject to final confirmation by the Department of Telecom.

Is this effectively a bailout for Vodafone Idea?

Yes, it is. Moreover, these decisions come following a relief package announced by the government in September. This rescue plan included moratorium on spectrum payments, option to convert interest on airwaves into equity, and reduced bank guarantees.

The package benefited Vodafone Idea the most since it can now save up to Rs 1 lakh crore cumulatively over four years.

What has Vodafone Idea’s competitor Airtel done about its government dues?

Vodafone Idea is so far the only company that has accepted the clause to convert its outstanding dues into equity. Airtel, which also opted for the moratorium, has not gone in for the equity conversion clause thus far. 

The third competitor, Reliance Jio, has opted neither for the moratorium nor for the equity conversion clause. But this is mainly because it owes far less to the government than Airtel and Vodafone Idea.

What does this decision by Vodafone Idea mean for its fundraising plans?

According to The Economic Times newspaper, this decision by the company raises questions on its fundraising plans. Vodafone Idea has been in discussions with global investors to raise Rs 25,000 crore for almost two years now but after the relief measures were announced, the company was expected to redraw its fundraising needs.

How have Vodafone Idea’s shareholders reacted to the news?

Not very kindly. The stock opened 10% down in the morning trade and then fell as much as 19% to Rs 12.05 apiece. It later pared the losses and was down 15.5% at Rs 12.55 apiece in afternoon trade. 

Could the government eventually merge state-run BSNL into Vodafone Idea?

The government becomes the single-largest shareholder, but not the promoter of Vodafone Idea. The promoter group still holds a controlling stake in the company. So, this is unlikely to happen, at least in the foreseeable future.