NEW DELHI: Debt-ridden Vodafone Idea (VIL) has decided to opt for converting about Rs 16,000 crore interest dues liability payable to the government into equity, which will amount to around 35.8 per cent stake in the company, as per a regulatory filing of the telecom firm.
The loss-making company has proposed to allocate preferential shares to the government at price of Rs 10 per share, which is at 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 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 10th January 2022, has approved the conversion of the full amount of such interest related to spectrum auction installments 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," Vodafone Idea 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 installments 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 said 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.
Edelweiss, in a report, said, "The equity shares will be issued to the government at a par value of Rs 10 per share. This is lower than the current market price, but at a 58 per cent premium to the relevant date of pricing - 14 August, 2021." The shares will be issued to the government on a preferential basis and the relevant date for pricing would be August 14, 2021, the filing said.
"Government, at its sole discretion, may convert any part of such loan to preference shares instead of equity shares and such preference shares may be optionally or compulsorily convertible and/or redeemable and/or participating in nature.
"The shares may be held through the statutory undertaking of the Unit Trust of India (SUUTI) on behalf of the Government of India or by any trustee-type or other suitable arrangement," VIL said.
The company is governed by shareholders who hold at least 21 per cent stake in the entity as per the shareholders agreement (SHA).
However, VIL will now amend shareholders' agreement in light of the conversion of interest into equity to reduce the threshold level for governing rights to 13 per cent from 21 per cent.
A Citi Research report said 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 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.
"significant government holding may dissuade potential investors, considering possible government intervention. As the government becomes the largest shareholder, we will keenly watch its board representation. We believe, strong increase in ARPU will be required for ensuring the financial interests of the government in VI are protected," the Edelweiss report said.
A CLSA report said even after relief, VIL will likely struggle to fund annual spectrum payments beyond an additional four-year moratorium unless average revenue per user (ARPU) reaches around Rs 250-300.
Jio's ARPU in the September 2021 quarter was Rs 143.6, while that of Bharti Airtel and VIL stood at Rs 153 and Rs 109, respectively. VIL had reported narrowing of consolidated loss to Rs 7,144.6 crore for the September quarter on account of an increase in mobile services tariff and cost optimisation.
The company had posted a loss of Rs 7,218.2 crore in the corresponding period of the previous financial year. In the latest September quarter, its consolidated revenue declined about 13 per cent to Rs 9,406.4 crore. The same was at Rs 10,791.2 crore in the year-ago period.