Debt-ridden Vodafone Idea (VIL) has decided to opt for converting about Rs 16,000 crore of interest dues liability payable to the government into equity. This will amount to around 35.8 per cent stake in the company, according to a regulatory filing of the telecom company (telco). 

The loss-making company has proposed to allocate preferential shares to the government at Rs 10 per share, which is at a 58 per cent premium based on the share price at the relevant date of August 14, 2021. 

Shares of the company closed at Rs 11.80 on Tuesday, down by 20.54 per cent. 

If the plan goes through, the government will become the biggest shareholder in the company, which is reeling under a debt burden of about Rs 1.95 lakh crore. “…the board of directors, at its meeting held on 10^th January 2022, has approved the conversion of the full amount of such interest related to spectrum auction instalments and AGR dues into equity. The Net Present Value (NPV) of this interest is expected to be about Rs 16,000 crore, as per the company’s best estimates, subject to confirmation by the DoT,” VIL has said in the regulatory filing.        

The government had given telecom operators an option of paying interest for the 4 years of deferment on the deferred spectrum instalments and AGR dues by way of conversion into equity of the NPV of such interest amount. The company’s total gross debt, excluding lease liabilities and including interest accrued but not due, as of September 30, 2021, stood at Rs 1,94,780 crore. 

The amount comprises deferred spectrum payment obligations of Rs 1,08,610 crore, AGR liability of Rs 63,400 crore that are due to the government and debt from banks and financial institutions of Rs 22,770 crore. 

VIL has added that since the average price of the company’s shares at the relevant date of August 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 DoT.    

“The conversion will therefore result in dilution to all the existing shareholders of the company, including the Promoters. Following conversion, it is expected that the government will hold around 35.8 per cent of the total outstanding shares of the company, and that the Promoter shareholders would hold around 28.5 per cent (Vodafone Group) and around 17.8 per cent (Aditya Birla Group), respectively,” the filing said. 

A Citi Research report has said that the government becoming the single-largest shareholder in the company creates some uncertainty around the extent of its involvement in running day-to-day business of VIL. 

It has added that a new investor can view the government’s involvement leading to a more supportive policy environment.   Analysts at Edelweiss believe that a significant shareholding will deter interest of potential investors in the company.