New Delhi: The government is open to picking up a token stake in Vodafone Idea by converting a part of the dues the company owes as part of the Centre’s efforts to instil confidence in investors about the future of the loss-making telco, said a person familiar with the matter.
The government may also keep the option of converting more of those dues into equity after four years, subject to conditions, the person said.
“A decision could be taken by the Cabinet on Wednesday, but there’s no certainty,” he told ET.
In its April-June earnings report, Vodafone Idea said total gross debt as of June 30 was Rs 1.92 lakh crore, comprising deferred spectrum payment obligations of Rs 1.06 lakh crore and AGR liability of Rs 62,180 crore that are due to the government, and debt from banks and financial institutions of Rs 23,400 crore. Cash and cash equivalents were Rs. 920 crore and net debt stood at Rs. 1.91 lakh crore.
‘Govt won’t infuse fund’
The quantum of the token stake and whether it would be in the form of equity shares or any other instrument is yet to be decided.
“There will be no infusion of funds from the government, only some of the dues which the company owes could be converted into the government’s stake,” he said.
The idea is to allay investor concerns and help the company raise funds in order to improve operations.
“The government is not interested in running the company’s operations–that is best left to the management. The idea is simply to help the telecom industry remain a three-player market,” the person said.
Despite trying for nearly a year, Vodafone Idea has failed to conclude its planned Rs 25,000-crore fundraising plan. In June, Aditya Birla Group chairman Kumar Mangalam Birla had written to the government that the telco won’t survive unless the government provided some relief, and had even offered to give up the ABG stake of 27.66% in Vodafone Idea to a state-owned entity that could help revive the company. Birla had said the telecom sector’s lack of viability was the chief reason for its inability to raise money.
Birla resigned as the chairman of the telco in early August and was replaced by Himanshu Kapania.
Vodafone Group has a 44.39% stake in Vi; the rest is with the public.
Vodafone Idea shares surged 9.2% to close at Rs8.69 on the BSE Tuesday. Investors hope the government will clear a relief package for the sector at its meeting on Wednesday, which could ease Vodafone Idea’s immediate cash flow woes and help maintain India’s telecom sector as one that has three private sector companies, the other two being Reliance Jio Infocomm and Bharti Airtel. State-run Bharat Sanchar Nigam Ltd. is the fourth telco in India.
As reported by ET on September 8, the Department of Telecommunications (DoT) has proposed a four-year moratorium on AGR and spectrum payments apart from a reduction in the spectrum usage charge (SUC) prospectively, among measures to improve the health of the debt-laden sector and retain a three-private player market.
Other crucial proposals include a reduction in bank guarantees, redefining AGR to exclude ‘non-telecom’ items, again prospectively, and allowing telcos to surrender unused spectrum. No reduction in licence fee has been proposed.
According to the proposal, in four years’ time, if the company is able to improve its operational performance but is hobbled only due to the payment of dues, the government could step in and convert a part of this into equity.
“The conversion will be based on the principal amount the company owes to the government excluding the interest,” said the person cited above.
A deferral option of four years could push the company’s AGR payout of almost Rs 36,000 crore by that much, easing its immediate cash flow problems, according to experts.
Additionally, Vodafone Idea pays licence fees and SUC of about Rs 5,000 crore annually, out of which the former is around Rs3,200 crore. Also, it needs to pay around Rs14,000 crore toward spectrum payments every year, starting April 2022.
Analysts fear Vodafone Idea may fall short of its annual payment commitments, including an AGR instalment and spectrum payment, by around Rs23,000 crore in FY23, pushing it towards bankruptcy.