According to a source familiar with the situation, the government is considering buying a token stake in Vodafone Idea by converting a portion of the company’s debts as part of the Centre’s efforts to reassure investors about the telco’s future.
According to the individual, the government may preserve the option of turning more of those dues into equity after four years, subject to certain criteria.
“A decision could be taken by the Cabinet on Wednesday, but there’s no certainty,” he told ET.
Vodafone Idea’s total gross debt as of June 30 was Rs 1.92 lakh crore, according to its April-June earnings report, which included deferred spectrum payment obligations of Rs 1.06 lakh crore and AGR liability of Rs 62,180 crore owed to the government, as well as debt from banks and financial institutions of Rs 23,400 crore.
Net debt was Rs. 1.91 lakh crore, with cash and cash equivalents totalling Rs. 920 crore.
Govt won’t infuse funds and the size of the token stake in Vodafone Idea, as well as whether it will be in the form of equity shares or another instrument, is still up in the air.
“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 goal is to assuage investor concerns while also assisting the company in raising funding 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.
Vodafone Idea has failed to complete its intended Rs 25,000-crore fundraising plan after nearly a year of attempting. Kumar Mangalam Birla, chairman of the Aditya Birla Group, wrote to the government in June, stating that the telecom would not survive unless the government intervened.
He even offered to sell the ABG’s 27.66% ownership in Vodafone Idea to a state-owned body that could assist in reviving the company. The telecom sector’s lack of viability, according to Birla, is the main reason for its difficulty to raise funds.
Himanshu Kapania took over as chairman of the telco after Birla left in early August. The Vodafone Group owns 44.39% of Vi, while the rest is owned by the general public. On the BSE Tuesday, Vodafone Idea shares rose 9.2% to Rs8.69.
Investors are hoping that the government will approve a rescue package for the telecom sector at its meeting on Wednesday.
This would help alleviate Vodafone Idea’s immediate cash flow problems and keep India’s telecom sector at three private businesses, including Reliance Jio Infocomm and Bharti Airtel. The fourth telecom in India is the state-owned Bharat Sanchar Nigam Ltd.
According to the idea, if the company improves its operational performance but is hampered only by the payment of dues, the government could step in and convert a portion of the debt into equity after four years.
“The conversion will be based on the principal amount the company owes to the government excluding the interest,” said the person cited above.
According to analysts, a four-year postponement option may increase the company’s AGR payout to about Rs 36,000 crore, alleviating its immediate cash flow issues.
In addition, Vodafone Idea pays licence fees and SUC totalling roughly Rs 5,000 crore each year, with the former amounting to around Rs 3,200 crore. In addition, beginning in April 2022, it will be required to pay about Rs 14,000 crore in annual spectrum fees.
Analysts believe Vodafone Idea will miss its yearly payment requirements of roughly Rs 23,000 crore in FY23, including an AGR instalment and spectrum payment, forcing the company into bankruptcy.