The government debt to equity conversion in Vi spilling over to 2023

Nearly a year after the government said it would acquire a 33% stake in Vodafone-Idea by converting dues of `16,100 crore into equity shares, the transaction is yet to go through. In mid-September last year, the government had rolled out a relief package for telcos allowing a four-year moratorium on spectrum and adjusted gross revenue (AGR) dues, as also options to convert the interest into equity. In January, the Vodafone board approved the conversion of dues into equity in a move that would dilute the stakes of the two promoters and make the government the majority shareholder.

Now, the department of telecommunications reportedly wants the promoters of Voda-Idea to contribute to the firm’s equity capital and rope in new investors. Further, media reports quote government sources as saying that it is waiting for the company to come up with a business plan that includes the rollout of 5G services. The fact is that the two promoters—Vodafone and the KM Birla Group—have infused funds to the tune of `4,900 crore. And even though it has been strapped for cash, the company participated in the recent spectrum auctions, buying 5G and 4G spectrum worth `18,790 crore and paying the first instalment of `1,680 crore. To that extent, the promoters have shown they are committed to keep the business going. Now, the government must keep its end of the bargain.

Time is clearly running out for Voda-Idea, which has lost subscribers for 19 months in a row—the number of data subscribers has remained flat at 135 million for the last four quarters. While the telco has acquired 5G spectrum, it doesn’t have the financial muscle to roll out the services. With rivals Bharti Airtel and RelianceJio having kicked off 5G services, Voda-Idea runs the risk of losing more of its quality, post-paid customers. That would further pressure its already precarious finances. The company’s balance sheet is now weighed down by a debt of over `2.2 trillion. The bulk of this, including deferred spectrum liabilities of `1.37 trillion and AGR liabilities of `68,600 crore, is owed to the government, and bank borrowings account for about `15,100 crore. Given the poor financials, the rapid loss of market share and the challenge of winning back customers, it would take a brave investor to become a stakeholder. The Voda-Idea brand is now so weak it could take years and enormous sums of money to make it a strong candidate. At the very least, a prospective investor would want reassurance from the government that it will back the business as the majority shareholder. So would a new lender.

Importantly, other financial transactions, linked to the conversion, are getting delayed. For instance, Voda-Idea had planned to square off its obligations of around `1,600-crore to ATC Telecom Infrastructure by issuing optionally convertible debentures. However, since the transaction was contingent upon the conversion of interest dues into equity by the government, it has been postponed until end-February 2023. This is really unfortunate. If the government is serious about wanting to revive Voda-Idea’s fortunes, as it appeared when it agreed to convert the dues into equity, it must stop dithering and act. Even with losses of close to `75,000 crore in three years, the company is a going concern. But it might not stay this way for much longer. Financial Express