Government To Convert Vodafone Idea Interest Dues Into Rs 16,000-Crore Equity

The ball is now in the company's court to finalise the fundraising plan.

<div class="paragraphs"><p>Vodafone Idea logo  is seen on a smartphone and a PC screen. (Photo: Pavlo Gonchar/SOPA Images/Sipa USA)</p></div>
Vodafone Idea logo is seen on a smartphone and a PC screen. (Photo: Pavlo Gonchar/SOPA Images/Sipa USA)

The central government has agreed to convert into equity the interest accrued on Vodafone Idea Ltd.'s dues, a move seen as a nudge to the beleaguered telecom operator to come up with a fundraising plan.

Vi has been directed to issue 16.13 billion equity shares of face value Rs 10 each at an issue price of Rs 10 each, according to an exchange filing on Friday. That translates to an equity stake of more than Rs 16,000 crore.

In a recent representation to the government, Vodafone Idea promoters—Aditya Birla Group and the U.K.-based Vodafone Group Plc—highlighted the delayed equity conversion by the government as a key reason for no clarity on the fundraising plan.

Now that the government has ticked the box, the ball is in the company's court to finalise the fundraising plan, according to bankers aware of the matter, who spoke with BQ Prime on the condition of anonymity.

Vodafone Idea is yet to demonstrate any firm fundraising plan to bankers. That has caused operational creditor dues to continue to pile up, they said. Unless the company is able to raise large equity, the future looks unclear.

The Ministry of Communications has passed an order under the Companies Act, 2013, directing the company to convert the net present value of the interest related to deferment of spectrum auction instalments and adjusted gross revenue dues into equity shares, and issue it to the government, according to the exchange filing.

To be sure, Rs 16,000 crore isn't nearly enough to pay off Vodafone Idea's debt—Rs 2,20,230 crore at last count—as well as fund network expansion. And then there are tower operators waiting to be paid.

ATC And Indus Towers Dues

On Jan. 31, the Vodafone Idea board approved for a second time an issue of optionally-convertible debentures, of up to Rs 1,600 crore, to American Tower Corp. These are convertible into equity shares at Rs 10 apiece.

A previous issue had lapsed in December last year due to lack of clarity on the equity conversion by the government. As on Sept. 30, Vodafone Idea owed ATC about Rs 400 crore.

The dues owed to Indus Towers Ltd. are significantly larger at Rs 7,000 crore. Vodafone Idea had agreed to clear the amount by July. Any failure to meet the deadline would raise serious questions on Vodafone Idea's existence, as more than 70% of Indus Towers' capacity is used for servicing millions of Vi customers.

Bank Loans

In January, BQ Prime reported that banks, led by SBI, are not in favour of taking further credit exposures to Vodafone Idea until further clarity on equity conversion by the government.

Vi had sought Rs 7,000 crore in emergency financing to pay off the tower operators. Lenders estimate that the telecom operator would need Rs 40,000–50,000 crore to remain a going concern, BQ Prime reported, citing two people aware of the matter.

Assuming a 3:1 debt-to-equity ratio, Vi promoters would need to bring in at least Rs 10,000-12,000 crore worth of equity capital, the first of the two people quoted above said.

So far, neither promoters have indicated that they are willing to invest further in Vodafone Idea, the two people said.

If they are not keen on investing these funds, it would be better for them to sell the company to a new promoter, willing to continue investing, the second person said.

Debt To Equity

In January 2021, the government had agreed to convert its outstanding dues worth around Rs 16,000 crore to 35.8% equity stake in Vodafone Idea. This move would have diluted the stakes of promoters to 50%.

In 2021, fears of Vodafone Idea not remaining a going concern had mounted and the market expected Indian telecom to become a duopoly. While a government bailout temporarily allayed those fears, a lack of clear fundraising plan is now haunting the telecom company again.