The government’s decision to increase its stake in Vodafone Idea at a premium was aimed at preventing its overall shareholding from exceeding 50 per cent in the cash-strapped telecom company. It also ensured compliance with the Companies Act, 2013, which mandates that shares cannot be issued at a discount, and it has to be at least at face value.
On Sunday, the government decided to allow the conversion of outstanding spectrum auction dues, including deferred dues repayable after expiry of the moratorium period, into equity shares. Vi has been directed to issue 3,695 crore equity shares at an issue price of ₹10 each within 30 days even though its shares had closed at ₹6.81 per share on Friday on BSE.
According to Shriram Subramanian, Founder and Managing Director of InGovern Research Services, “The market price of ₹6 would have led to government shares increasing to 55-60 per cent stakes from 22.60 per cent. The government already has BSNL [Bharat Sanchar Nigam Ltd] and Vi is still making operating profits. They’re trying to keep the company afloat without making it a PSU and keep competition alive.” This sentiment was also reinforced by JM Financial in its report, stating that the government has always maintained zero interest in taking over majority stake in the company.
Another proxy firm pointed out under Section 53(2) of the Companies Act, 2013, the government cannot issue shares below face value and so fresh allotment has to be at that price of the share. The government is also keen to keep at least three competitors in the market to avoid a duopoly, said the firm.
Looking at the conversion as a positive move, Citi Research in its report said, “Overall, we view this as a major display of support by the government in a very timely manner, which should provide significant cash flow relief to Vi in the next three years and help it complete its bank debt raise,” said the report.
spectrum payments
It estimated that Vi’s spectrum dues (for pre-2021 spectrum) that are payable over FY26/27/28E could reduce from approximately ₹11,000/25,000/25,000 crore to approximately ₹500/5,000/15,000 crore, implying more than ₹40,000 crore of cash flow relief over the next three years. The annual spectrum payments of around ₹2,200 crore for post-2021 spectrum and annual AGR payments of around ₹16,500 crore would remain payable. The report said this should help the telco move one step closer to completing its long-delayed debt raise from banks.
However, Parag Kar, independent telecom expert, said the move can at best buy Vi a few more months. He pointed out that Vi’s total government debt stands at around ₹2.2 lakh crore ( before the debt-equity swap deal)
“This translates into annual payments of approximately ₹40,000 crore in interest and principal. The recent increase in the government’s stake to 49 per cent will marginally reduce Vi’s immediate obligations. However, any dues falling in FY26, if converted into equity, could push the government stake beyond 49 per cent, depending on how much Vi is able to pay once the moratorium ends.”
Kar added that if AGR dues are not part of the current conversion, Vi will likely end up paying around ₹18,000 crore to the government this financial year. “That would push the government’s equity to 56.5 per cent. This pattern will continue given Vi’s massive debt burden, and government stake could cross 70 per cent in the next couple of years,” he estimated.
Meanwhile, telecom expert Mahesh Uppal, Director of Com First (India) pointed out that now that the government has 100 per cent stake in BSNL and 49 per cent stake in Vi, there will be regulatory issues from a competition perspective. The higher stakes can compromise certain kinds of regulation like spectrum, where there’s a limit to the proportion of spectrum that any particular company can hold in a band as well as in a particular circle. So navigating such rules becomes a bit messy with the govt owning equity in more than one company.
