After Birlas Commit To Invest, Centre Agrees To take Equity In Vodafone Idea

The culmination of the equity conversion plan comes more than a year after the government made the initial decision, and serves as a breather for Vodafone Idea with a debt burden of ₹2.2 trillion as of September 2022. The loss-making telco has been struggling to raise ₹20,000 crore funds via debt and equity since 2021. “We had sought a firm commitment that the Aditya Birla Group would run the company and bring necessary investments. Birlas have agreed and, hence, we have agreed to convert. We want India to be a three-player market plus BSNL, and ensure healthy competition for consumers," Union telecom minister Ashwini Vaishnaw said in a statement.

In a stock exchange filing, Vodafone Idea said, “Ministry of communications, government of India has, in line with the reforms and support package for telecom sector communicated earlier and the conversion option exercised by the company as provided for therein, passed an order today i.e. 3 February, 2023 under section 62(4) of the Companies Act, 2013, directing the company to convert the NPV of the interest related to deferment of spectrum auction instalments and AGR dues into equity shares to be issued to the government of India." The government has directed that 16.13 billion shares of a face value of ₹10 each be issued to it, and the company will take “all necessary actions forthwith" for the issue, Vodafone Idea added.

According to an official aware of the matter, government officials held discussions with Vodafone Idea executives on the company’s business plan to stay competitive before agreeing to proceed with the equity conversion.

“There was a delay; we wanted them to show us a clear business plan. We’ve held discussions with them, and they’ve shared it with us. Discussions were also on to get bankers on board," the official said on condition of anonymity.

While the government had asked the telco to bring in more equity from promoters or from external investors, the conversion was not contingent on them raising funds, the official added. Mint was the first to report on 3 November that the government wanted promoters to infuse further capital and a business plan to revive the firm, for the government to proceed with the equity conversion.

Under the equity conversion plan proposed in January 2022, the government would have become Vodafone Idea’s single-largest shareholder with a 33% stake, and promoters’ holding would have reduced to 50% from almost 75%. However, it is unclear what the final shareholding of the Centre will be, as many changes have taken place in the past year.

In March, promoters Vodafone Group and Aditya Birla Group pumped in ₹4,500 crore—part of the proposed ₹25,000 crore fund-raise from investors—and in July, Euro Pacific Securities, a Vodafone Group Plc entity, brought in ₹436 crore more.

The government had given another option to Vodafone Idea to convert the interest on moratorium of paying adjusted gross revenue or AGR dues of ₹8837 crore pertaining to FY18 and FY19 into equity to be owned by the government. Vodafone Idea decided against this.

The struggling carrier has been unable to make payments to its tower vendors Indus Towers and American Tower Corp. (ATC). It has sought easier and staggered payment terms from them while offering optionally convertible debentures of ₹1600 crore to ATC and will use the funds to pay back some of the pending dues to the tower operator for renting its assets to provide mobile phone services in India. At present, Vodafone Idea owes more than ₹3,000 crore to ATC and an additional estimated ₹7,000 crore to Indus Towers, the world’s largest tower provider.

The equity conversion had been hanging fire since January 2022 when the No. 3 carrier agreed to the government proposal to take the option as part of the reforms package announced in November 2021.