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Government bailout of Vodafone Idea

Date: 14 January 2022 Tags: Miscellaneous

Issue

Telecom operator Vodafone Idea has decided to convert Adjusted Gross Revenue (AGR) on spectrum installments into equity issuable to the Government. 

 

Background

The company has been given the option of deferring the AGR-related dues as well as spectrum auction installments by a period of four years.

 

Details

  • Estimates by the company puts the Net Present Value (NPV) of the interest to Rs16, 000 crore.  The equity shares will be issued to the Government at par value of Rs 10 per share. 

  • After the conversion into shares, the government is expected to hold 35.8% in the company. The present shareholders of the company will be diluted.

  • The shares of Vodafone group will fall to to 28.5% from 44.4% and for the Birla Group, to 17.8% from 27.7%.

 

The government’s option

  • The government had given telecom companies moratorium of up to four years in annual payment of dues arising out of AGR as well as on dues payments for spectrum previously purchased.

  • They also had the option of paying interest for the four years on deferred spectrum installments and AGR dues by way of conversion into equity.

 

Significance

  • The relief package ensures the survival of Vodafone Idea and sees that telecom in India remains a three private player market. The company will also have no urgency to raise tariffs.

  • The move will help Vodafone Idea address near-term liquidity concerns. It will significantly reduce the debt burden.

  • The company will have funds to invest in improving its network quality and also in providing 5G services in future.

 

Concerns involved

  • There is no clear idea about the extent of government’s involvement in the company. It will be seen if government plays a major role in decision making.

 

Declining share

Vodafone Idea currently has a market share of 23.7% or 253 million subscribers. This is significant fall from the initial base of 400 million when Idea and Vodafone had merged.