Vodafone Idea gets another lifeline, govt to convert ₹36,950 cr dues into equity

Debt-ridden Vodafone Idea Ltd received another lifeline as the government decided to convert an additional ₹36,950 crore worth of the company's dues into equity, more than doubling its shareholding to nearly 49%.

The amount includes outstanding spectrum auction dues, including deferred dues otherwise payable by the company after the expiry of the moratorium period, the telecom operator said in an exchange filing on Sunday.

The government has directed Vodafone Idea to issue 3,695 crore equity shares with a face value of ₹10 each at an issue price of ₹10 each within 30 days of the issuance of necessary order from relevant authorities, including the Securities and Exchange Board of India.

At ₹10, the conversion will take place at a 47% premium to the Friday closing share price of ₹6.81 apiece.

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After the company issues shares, the government’s shareholding in Vodafone Idea will increase to 48.99% from the existing 22.60%. “The promoters will continue to have operational control of the company,” Vodafone Idea said.

Second lifeline

This is the second lifeline the government has extended to the struggling operator. As part of the relief package for the telecom sector in September 2021, the government in February 2023 had approved the conversion of ₹16,133 crore of Vodafone Idea's interest dues into equity. Going by Vodafone Idea’s share price of ₹6.81 at the end of Friday’s session, the government's ₹16,133 crore investment is currently valued at ₹10,970 crore, a loss of 32%.

“The company has been in distress and the equity conversion has been done to take it out of distress,” a government official said, adding that the conversion is only on some spectrum dues and the company will have to pay AGR dues after the moratorium expires.

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The additional conversion of dues into equity has come after Vodafone Idea chief executive officer Akshaya Moondra recently sought relief from the government. This comes ahead of the expiry of the four-year moratorium on adjusted gross revenue (AGR) and spectrum dues in September 2025.

Without the relief, Vodafone Idea would have to pay around ₹40,000 crore as a yearly instalment after the moratorium expired. Analysts said the government’s equity conversion of spectrum dues would give a leeway to Vodafone Idea, at least for the next 18 months, on the spectrum dues.

“The conversion will help Vodafone Idea to raise the bank debt of around ₹25,000 crore, which it has been looking to raise for long,” a company executive said on the condition of anonymity. “It can bring its cash flow back with the future bank debt and reduce its subscriber churn.”

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