The Government to Turn the INR 37K cr in Voda Idea Debt into Equity

On 30 March, Vodafone Idea (Vi) announced that the government would increase its ownership of the struggling telecom carrier from 22.6% to around 49%. The government will achieve this goal by converting its outstanding spectrum auction dues into equity shares valued at INR 36,950 crore. Currently, the major shareholder in the telecom company is the government. Vi stated in an exchange filing that the Ministry of Communications has chosen to convert the outstanding spectrum auction dues into equity shares to be issued to the Indian government in accordance with the September 2021 Reforms and Support Package for the telecom sector. INR 36,950 crore is the entire sum that needs to be changed into equity shares.

Vi Directed to Issue 3695 Crore Equity

According to Vi, it has been instructed to issue 3,695 crore equity shares with a face value of INR 10 each at an issue price of INR 10 each. The Vi has to complete this task within 30 days after the issuance of the necessary order from relevant authorities, including from the regulatory authority, the Securities and Exchange Board of India (Sebi). The action will enable Vodafone Plc and the Aditya Birla Group, the company's promoters, to maintain operational control over the business. The Department of Telecommunications (DoT) received a letter earlier this month from Vi Chief Executive Officer Akshaya Moondhra requesting additional conversion of the telco's adjusted gross revenue (AGR) dues and spectrum usage charge payment instalments for airwaves purchased in the 2012, 2014, 2015, and 2016 auctions. The government permitted financially troubled telcos to convert a portion of their government debt into equity as part of the telecom reform package that was approved by the Cabinet in September 2021. After 16 months of talks, the government eventually agreed to Vi's plan to convert INR 16,000 crore in interest liabilities owed to the government into equity in February 2023. The Centre then acquired a 33.1% share.

How this Move will Benefit Vi?

Vi chose to convert the interest on the moratorium into equity, as permitted by the reform package. Additionally, it preserved the possibility that the government can convert the principal of the four-year payment moratorium into equity when it expires in September 2025. Vi has significant payment obligations after October. Including principal and interest, the business must pay the government INR 12,000 crore between then and March 2026. It then has to pay INR 43,000 crore every year for five years, from 2026–2027 to 2030–2031, before that. Vi's debts to banks and financial institutions decreased from INR 7,620 crore at the end of the third quarter (October–December) of FY25 to INR 2,330 crore. However, the corporation owes the government INR 69,020 crore in adjusted gross income and INR 1.38 trillion in postponed spectrum payment commitments.