The Centre in its telecom reforms package last October granted telecom companies a four-year moratorium on spectrum and AGR dues. Companies were also granted an option to convert interest on deferred liabilities into equity.
On Monday, the telecom company’s board decided to exercise the option and approved the conversion of full amount of interest (with a net present value of around Rs 16,000 crore) into equity. The shares would be allotted to the government at par value of Rs 10 per share since the average price of company’s share was below the par value on the relevant date that was fixed by the government under the reforms package.
“The conversion will therefore result in dilution to all existing shareholders of the company including the promoters. Following the conversion it is expected that the government will hold around 35.8 per cent of the total outstanding shares of the company and the promoter shareholders would hold around 28.5 per cent (Vodafone Group) and around 17.8 per cent (Aditya Birla group) respectively,” the company said in a stock exchange notification.
While the government may become the largest shareholder, it may not get involved in running the company. In an earlier interaction with Business Standard, Vi’s CEO Ravinder Takkar had said that it would be incorrect to state that the company will turn into a public sector undertaking. “The government wants us to run the company efficiently and competitively. In all my conversation with the government it has clearly said it has no interest in acquiring and running telecom companies in India,” Takkar had said.
While the four-year moratorium will enable Vi to conserve around Rs 60,000 crore, it will need to raise funds to pay its bank loans, improve and expand its network and acquire spectrum for 5G service that will be rolled out this year.
As of September end, Vi had gross debt of Rs 1.94 trillion comprising deferred spectrum obligation of Rs 1.08 trillion, AGR liability of 63,400 crore and bank debt of Rs 22,770 crore.
The promoters have also decided to amend shareholder agreement and articles of association to protect their governing rights. This amendment is necessitated following dilution of promoter shareholding.
“The governance and other rights of the promoter shareholders are governed by a Shareholders Agreement (SHA) to which the company is a party and are also incorporated in the Articles of Association of the Company. The rights are subject to a minimum qualifying threshold of 21 per cent for each promoter group, and in light of the conversion of interest into equity, the promoters have mutually agreed to amend the existing SHA for reducing the minimum qualifying threshold from 21 per cent to 13 per cent for the purpose of exercising certain governing rights e.g. appointment of directors and relating to appointment of certain key officials etc,” the company said in its notification.
Following the announcement, the Vodafone Idea stock tanked and is trading 14.8 per cent lower at Rs 12.65 on the BSE, over its previous closing.