Govt to pick up 33% stake in ailing Vodafone Idea
06 Feb 2023
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Vodafone Idea got a lifeline with the central government finally deciding to go ahead with its plan to pick up around 33 per cent stake in the ailing telecom operator, thereby also becoming the largest shareholder of the company.
The move comes after promoters Aditya Birla group and Vodafone Plc assured that they will raise as much as Rs20,000 crore, apart from kickstarting the exercise to launch the high-speed 5G network. The centre’s move was put in place amid concerns the telecom sector needs at least three private players and to provide choice to customers.
The government will pick up the equity at par value of Rs10 apiece, in line with the Companies Act provisions, even though the telco’s shares closed at 7 on Friday, up 3 per cent. “All the requisite approvals have been given by the government, and now Vodafone Idea will move ahead to give equity to the government,” The Times of India report quoted top source as saying.
At the end of December 2022, the promoters held around 75 per cent in Vodafone Idea, with Vodafone Plc holding 48 per cent and Aditya Birla Group 27 per cent. After the fresh equity infusion, the shareholding of the promoters will come down to around 50 per cent, with the government emerging as the largest shareholder.
Friday’s approval by the department of telecom (DoT) comes after the union cabinet in September 2021 proposed to pick up equity in local telecom companies in case any of them opted for a moratorium on spectrum payments and AGR dues. The equity conversion is being undertaken in lieu of the interest payout for the delayed payments for those opting for the moratorium, which in Vodafone Idea’s case amounted to Rs16,133 crore.
“Ministry of communications, in line with the reforms and support package for telecom sector communicated earlier and the conversion option exercised by the company as provided for therein, passed an order… directing the company to convert the NPV (net present value) of the interest related to deferment of spectrum auction instalments and AGR dues into equity shares to be issued to the Government of India,” Vodafone Idea stated in a release.
It is understood that the existing promoters have agreed to put in more funding in the company once the government comes on board. They had earlier put in around Rs5,000 crore in Vodafone Idea after the government announced the moratorium package.
The report said that the government has not opted to get management control or a board seat, and all day-to-day operations will be managed by the existing promoters. “We had been engaged in discussions with the company and the promoters and were also assessing their plans to effect a turnaround in case they get the government’s support through equity conversion. There were no specific reasons for the delay. But most of these were due to operational matters,” the source said.
Aditya Birla group chairman Kumarmangalam Birla, who was awarded Padma Bhushan, had met communications minister Ashwini Vaishnaw a few weeks ago and had made a request for expediting the equity conversion process so that the company could undertake expansion plans.
Vodafone Idea had been formed after the merger between Birla’s Idea Cellular and British mobile carrier Vodafone Inc’s fully-owned Indian subsidiary. The trigger for the merger was the crippling effect on the finances of the older telecom players after Mukesh Ambani re-entered the mobile business in September 2016 with highly aggressive tariffs and free voice.
Vodafone Idea has been reeling under crippling losses and heavy debt and had failed to show any signs of improvement despite the government’s bailout package for telecom industry. The industry got further boosters at the time of 5G spectrum auctions last year, though the company hasn’t managed to turn around business or get any major financial investment.
Vodafone Idea, which was the only private operator that had not put up even a single 5G tower even as Jio and Airtel raced ahead with the next-generation telecom services, carried a net debt of Rs2. 2 lakh crore at the end of the quarter ended 30 September 2022 (its last-reported financial performance).
Telecom minister Ashwini Vaishnaw said that the Aditya Birla Group would run the company and bring necessary investments.
