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Govt intervention and conversion of dues into equity key for Vi

Government intervention through extension of moratorium or waiver of dues, combined with conversion of the dues to equity, will be key to Vodafone Idea Ltd’s (Vi) longterm survival, despite the ₹18,000 crore fund raise and imminent tariff hikes, brokerages tracking the stock said in reports following the No. 3 carrier’s results last week.

The Aditya Birla Group-backed telecom unit will face a cash shortfall of ₹10,000 crore over FY25-27 and another ₹74,000 crore over FY28-32, said Kotak Institutional Securities. The payments to government will fall due following a four-year moratorium given by the government under reforms of 2021 on payments for spectrum bought in 2022.

“With the GoI’s intention of maintaining a 3+1 market construct in the Indian telecom sector, we believe there could be further reform measures such as (1) extension of moratorium, (2) part waiver of AGR dues and/or (3) equity conversion of Vi’s deferred dues,” the brokerage said in a note on Monday.

‘Favourable win in courts may reduce telco’s liability, bring down total dues’
Favourable win in courts where the telco has filed a curative petition against the adjusted gross revenue (AGR) dues, could reduce the liability by a substantial ₹35,000 crore, bringing down the total dues from ₹70,300 crore, analysts at Citi Research said. Vi has filed for curative petition in the Supreme Court where it has asked for reconciling arithmetic error basis its self-assessment, as it found error in base AGR dues of ₹6,000 crore out of a total ₹14,000 crore, and reduction of interest, penalty and interest on penalty to take down AGR dues by ₹24,000 crore.

ICICI Securities pegged the benefit from reduction in the interest cost at ₹33,000 crore. “Apart from this, company has also prayed to court for reduction in interest, penalty and interest on penalty for base agreed number. It is hopeful of trial post the upcoming summer vacation of the Supreme Court,” it added.

Brokerage JM Financial said that Vodafone Idea would need sharp sustainable jump in capex, multiple significant tariff hikes and relief from government dues, either via conversion to equity or further extension of moratorium, to ensure it remains a strong viable telecom company in the long term.

“Whilst upside in our bull case could be material, a lot needs to happen for this to be realised, not least of all unwavering government support on the liability front (through one or more of the following—conversion, extension, relief, waiver). Government support has been unequivocally evident in recent months, but continued dilution remains a material uncertainty,” Citi analysts said.

Larger govt stake
Vodafone Idea’s chief executive officer Akshaya Moondra said in the fourth quarter earnings call that it was looking at converting upcoming instalments into equity after the moratorium ends in September next year. Following the follow on public offer (FPO), the government’s holding has come down to 24% from about 32% after conversion of interest component on debt to equity, but it still remains the single largest shareholder in the telecom company. Moondra had said that if the telecom company were to opt for converting spectrum payment instalments into equity, government shareholding would rise to about 32% again.

The third-largest carrier has laid out a ₹50,000-55,000 crore capex plan for the next three years for ramping up 4G coverage and capacity, which will be aimed at arresting its user declines, and for launching 5G services, such that it’s competitive with larger rivals Bharti Airtel and Reliance Jio.

Moondra added that the telecom firm was in talks with banks and funds to raise another ₹35,000 crore which along with the proceeds of ₹18,000 crore FPO and ₹2,075 crore equity put in by promoters, will be aimed towards making the telecom firm a sustainable player in India. Livemint

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