Govt to take call on Vi’s conversion of debt into equity after moratorium

The government will take a call on further conversion of Vodafone Idea’s (Vi’s) existing debt into equity only after receiving a request for this from the company, according to industry sources.

As part of the telecom reforms package approved by the Union Cabinet in September 2021, the government had allowed financially stressed telecom companies to convert a part of their debt owed to the government into equity.

In February 2023, after 16 months of discussions, the government had assented to Vi converting its Rs 16,000 crore worth of interest liability payable to the government into equity.

“The reforms package had allowed two things. One was the conversion of the interest on moratorium into equity. Vi had opted for this. The second was the conversion of the moratorium principal into equity. The decision on this will be taken after the four-year payment moratorium ends in September 2025. So that route is open,” said an industry source who did not wish to be named. The decision to convert principal dues into equity, according to sources, cannot be done automatically.

The government would have the power to take a decision on the matter after the end of the moratorium period. The government also has the power to provide a further moratorium on spectrum dues, said a Vi official asking not to be named. However, the official said that reaching a consensus on this might be difficult, given that it will increase the government’s holding and lead to significant dilution of stake for existing shareholders.

Changing stakes
Vi Chief Executive Officer Akshaya Moondra, according to reports, has said the beleaguered telco might have the option to further convert its dues to the government into equity.

Taking into account both principal and interest, Vi has to pay Rs 12,000 crore to the government between October 2025 and March 2026. Subsequently, it needs to pay Rs 43,000 crore annually for five years, or from 2026-27 to 2030-31.

Since the last debt conversion, the government has become the biggest shareholder in the telco, with a 33.1 per cent stake. Promoters Aditya Birla Group and UK-based Vodafone Plc hold 18.1 per cent and 32.3 per cent, respectively. After Vi completes its Rs 18,000 crore follow-on public offer, which opened on Thursday, the government stake in the telco will reduce to 24 per cent.

But since Vi still has a sizeable chunk of debt, further conversion of debt might be required. The company had reported a total debt of Rs 2.15 trillion as on December 31, 2023, including its deferred spectrum payment obligations of Rs 1.38 trillion and adjusted gross revenue liability of Rs 69,020 crore due to the government. Besides, there are Rs 6,050 crore of dues to banks and financial institutions, and optionally convertible debentures amounting to Rs 1,660 crore. Business Standard