32% government stake in Vodafone Idea ahead of 5G auction; debt conversion in 2-3 weeks

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Ahead of the 5G auction, which will start on July 26, the government will convert its debt into shares in Vodafone Idea, official sources said. The move will help the financially-struggling telecom operator achieve its fundraising target of Rs 25,000 crore.

“Government’s decision to convert the interest of Rs 16,133 crore into shares will be notified to the company and the company’s board will accomplish this in 2-3 weeks,” a senior government source told FE .

After the share conversion, the government will own a 32% stake in Vodafone Idea and the developers’ stake will be diluted to around 50% from the current 75%.

The conversion of debt into equity will be done under Section 62(4) of the Companies Act. Vodafone Idea will issue shares to the government on a preferential basis which will be held by the Department of Investment and Public Asset Management (Dipam).

In January, Vodafone Idea’s board advised the Department of Telecommunications (DoT) that it would opt to convert interest on its Adjusted Gross Income (AGR) and spectrum rights into government shares. This follows a telecom stimulus package announced by the government in September 2021. The net present value (NPV) of this interest is expected to be around Rs 16,133 crore.

The completion of the fundraising exercise is crucial for the company if it wants to participate in the auction. So far, the company’s promoters – Vodafone Plc and Aditya Birla Group – have injected a total of Rs 4,500 crore into the company as capital contribution and the telecom company is to raise another Rs 20,000. crore.

“There could be three types of funding – developers, lenders and potentially third-party investors or new investors. The promoters’ money has already come in and they are the first to say that we are comfortable. They have put Rs 4,500 crore so another Rs 20,000 crore is needed, which we are looking to raise from lenders and equity investors, of which Rs 10,000 crore is equity investment and Rs 10,000 crore is debt Ravinder Takkar, Managing Director and CEO, Vodafone Idea, had recently told FE. He had said that lenders and investors were now comfortable with the business and that once the government converted its debt into equity, funding from both sources would come.

“We are probably in a good position, as we always have been, to close both sources of funding (lenders and investors) and hopefully we have something to announce in the coming period. We are in detailed discussions with the consortium of lenders,” Takkar added.

“Since the government’s stake will be over 25%, it will have to seek a waiver from the Securities and Exchange Board of India to make an open offer for another 26%,” government officials said. According to Sebi standards, the acquisition of 25% or more of shares or voting rights triggers the need to make an open offer for a minimum of 26% of the share capital of the company.

The government has already informed Vodafone Idea that its stake in the company will be treated as a “public stake” and not that of the developer. He will not participate in the management and will not be represented on the board of directors.

Takkar had said that the Rs 25,000 crore funding would be enough for the company to take care of investments as well as cash flow in the near future.

“Today, if you look at our total debt, which is 1.98 trillion rupees, 90% of it is owed to the government. On non-government debt, we are in a comfortable position for the size of our business and the size of Ebitda. Exposure has also decreased, with the government returning bank guarantees of Rs 15,000 to 16,000 crore. There is an opportunity for funding that the banks will provide us with and the additional equity that will come,” Takkar said.

He had said that due to financial constraints, the company’s capital expenditure in terms of adding more 4G sites was lagging behind its peers. “What happened in recent years when they (the competitors) accelerated their capex investments, we were left behind, it is a disadvantage”, he had underlined.

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