Government approves equity support to Vodafone Idea

It came as a big relief to Vodafone Idea as the government of India finally approved the conversion of outstanding interest dues of Vodafone Idea into equity shares. Total accrued interest worth Rs16,133 crore due to deferment of AGR and spectrum dues will get converted into equity. As committed, the Aditya Birla Group will infuse fresh funds into VI to make it more viable.

The Indian government had not been comfortable with a duopoly in which only Reliance Jio and Bharti Airtel remained the major competitors in the telecom space. That would have constricted the choice for customers. Hence, the government has given a number of sops to bail out Vodafone Idea from the financial troubles it finds itself in. That is why the conversion had been delayed since the government had asked for a firm commitment that Aditya Birla Group should run Vodafone India and bring in necessary investments.

As part of the conversion, the net present value (NPV) of the interest related to deferment of spectrum auction instalments and AGR dues would be converted into equity shares issued to the government of India. The company will issue a total of 1,613 crore equity shares of FV(10) at a price of Rs10 per share to the government of India. This would just leave the spectrum and AGR dues pending to be paid by Vodafone Idea over the next ten years.

Post the conversion, Indian government becomes the single largest shareholder of Vodafone Idea with a 33% stake in the company. The promoter holdings (Vodafone UK plus Aditya Birla Group) would come down from 74.99% to just 50%. However, neither will the Indian government have a representative on the board of Vodafone Idea, nor would it participate in the day-to-day management of the affairs of the company.