32% govt stake in Vodafone Idea before 5G auctions; debt conversion in 2-3 weeks

Ahead of the 5G auctions, which commences from July 26, the government will convert its debt into equity in Vodafone Idea, official sources said. The move will help the financially-stressed telecom operator to reach its Rs 25,000-crore fund-raising target.

“The decision of the government to convert the interest of Rs 16,133 crore into equity will be notified to the company and the company’s board will accomplish this in 2-3 weeks time,” a senior government source told FE.

After the equity conversion, the government will hold a 32% stake in Vodafone Idea and the promoters’ stake will get diluted to around 50% from the current 75%.

The conversion of debt into equity will be done under Section 62 (4) of the Companies Act. Vodafone Idea will issue shares to the government on a preferential basis to be held by the department of investment and public asset management (Dipam).

In January, Vodafone Idea’s board had informed the department of telecommunications (DoT) that it will opt for converting the interest on its adjusted gross revenue (AGR) and spectrum dues into government equity. This followed a telecom revival package announced by the government in September, 2021. The net present value (NPV) of this interest is expected to be about Rs 16,133 crore.

The completion of the fund-raising exercise is crucial for the company if it wants to participate in the auctions. So far, the company’s promoters – Vodafone Plc and Aditya Birla Group – have pumped in a total of Rs 4,500 crore into the company as their equity contribution and the telco needs to raise another Rs 20,000 crore.

“There could be three sets of funding – promoters, lenders and potentially third-party investors or new investors. The promoters’ money has already come in and they are the first ones to say we are comfortable. They have put in Rs 4,500 crore, so another Rs 20,000 crore is needed, which we are looking to raise from lenders and equity investors, of which Rs 10,000 crore is equity investment and Rs 10,000 crore is debt,” Ravinder Takkar, managing director and CEO, Vodafone Idea, had told FE recently. He had said that lenders and investors are now comfortable with the company and once the government converts its debt into equity, funding from these two sources would come.

“We are probably in a good position as we ever were in closing those two sources of funding (lenders and investors) as well and hopefully, we have something to announce in coming period of time. We are in detailed discussions with lenders’ consortium,” Takkar had added.

“Since the government’s stake will be more than 25%, it will need to seek exemption from the Securities and Exchange Board of India from making an open offer for an additional 26%,” government officials said. According to Sebi norms, acquisition of 25% or more shares or voting rights triggers the need to make an open offer for a minimum of 26% of the share capital of the company.

The government has already informed Vodafone Idea that its holding in the company will be treated as ‘public shareholding’ and not promoter’s. It will neither participate in the management nor have a board representation.

Takkar had said that the Rs 25,000-crore funding would be enough for the company in the near future to take care of capex as well as cash flows.

“Today if you look at our total debt, which is Rs 1.98 trillion, 90% of it is owed to the government. On non-government debt, we are in a comfortable position for the size of our business and size of Ebitda. The exposure has also come down with the government returning Rs 15,000-16,000 crore bank guarantees. There is funding opportunity that the banks will provide us and the additional equity that will come in,” Takkar had said.

He had said that because of fund constraints, the company’s capex in terms of adding more 4G sites has lagged behind peers. “What has happened in the last few years when they (competitors) have accelerated their capex investments we have been left behind, that is a disadvantage,” he had pointed out.