Govt Can Convert Vodafone Idea’s Dues Into Equity Only After Telco’s Stock Price Stabilises Above Rs 10: Indus

According to the second quarter report of Indus Towers, India’s largest mobile tower installation company, the Government of India under the company law provisions cannot convert accrued interest on AGR-related dues into equity before Vi’s stock prices stabilises. The stock price of the loss making telecommunication company needs to stabilise above the par value of Rs 10 for the GoI to move ahead with the provision and complete the transaction. Vi’s stock prices have been trading below Rs 10 for the past few months with the price closing at Rs 8.54 at BSE last Friday.

The proposal for converting accrued interest on AGR-related dues into equity was first passed by Vi’s board at the beginning of this year. Later in September this year, the Government of India also passed a proposal of converting Vodafone-Idea’s (Vi)  accrued interest on the adjusted gross revenue (AGR) dues into equity. The transaction, when completed, will give the Government of India near about 33 per cent stake in the telecom company.

The accrued interest on deferred AGR-related dues of India’s third telecom player stands at Rs 16,130 crore. Now that it is time for the Department of Telecommunications (DoT) to finalise the transaction, it appears provisions under the company law are going to delay the settlement even further.

While making their second quarter report public, Indus Towers said, “According to the company law provisions, any equity infusion cannot be below par value (Rs 10) and hence, the equity conversion will only be decided once telco’s stock price stabilises above Rs 10.”

Although there was no immediate official response from Vi or any of its officials on the comments made in the Indus Towers report but the company earlier in September had denied any such provisions being the seasons of delay in conversion transactions. The company had clearly stated that there are no such provisions that are hindering the Government of India from moving ahead with the transactions.

Vi has said to a new agency, “There is no such guideline that prohibits the government from taking equity if the company’s share value is less than the par value. We understand that prior to the announcement of the landmark telecom reforms in September 2021, all due diligence was done by the government and the relevant ministries in this matter.”

The conversion of accrued interest on AGR-related dues into equity would give the Government of India a 33 per cent stake in the company. Successful completion of this transaction will then turn the Centre into the signal largest shareholder of the telecom company, which is currently a  joint venture of Vodafone Group and Aditya Birla Group. Once the transaction transpires, teleco’s plan is to further move ahead with their 20,000 crore fundraising plans via a combination of debt and equity. The company is in grave need of funds at the moment to clear all its dues to various parties, which includes around Rs 7000 crore to Indus Towers itself.

Stakeholders are also apprehensive about Vi’s 5G rollout plans as it all depends on how the interest into equity conversion happens. Touching on this issue, Indus in its report notes, “Vi has stated that its 5G roll-out will depend on various factors, such as the evolution of use cases, demand from customers, capacity requirement, as well as competitive dynamics.

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