The largest shareholder of Vi-Govt owns a 35.8% stake

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The financially burdened telco opted to convert interest on the deferred spectrum and adjusted gross revenue (AGR) dues into equity. So the Indian government is ready to own 35.8% of Vodafone Idea (Vi).

UBS Global Research stated that the company is in a better position to raise funds and increase the chance of long-term survival hence, the government will have an interest in safeguarding the equity value.

Union government becomes the single largest shareholder in Vi. Last October, with the intent to improve the liquidity and ease of doing business, the Union Cabinet cleared the telecom reforms package.

Telecom companies were offered the option of the four-year moratorium on the spectrum and adjusted gross revenue dues. They were also offered an option to convert to equity from interest on deferred liability.

Last Monday, Vi had decided to exercise the option and accepted the conversion of full interest to equity.

As per the company’s evaluation, the net present value (NPV) is approximately Rs 16000 crore, and the shares would be allotted at an issue price of Rs 10 per share. The allotment will take place after confirmation by the Department of Telecommunication (DoT).

The government prefers any loans to be converted to preference shares that would be convertible or redeemable.

In a stock exchange notification, the company mentioned that it is anticipated that government will hold 35.8 % approximately of the total outstanding shares, Vodafone Group will hold 28.5% approximately, and Aditya Birla Group will hold 17.8% approximately.

Presently, Vodafone Group holds 44.3% at the same time, Aditya Birla Group holds around 27.7% in the telco.

Vi promoters have decided to modify the agreement of shareholders and articles of association to safeguard their governing rights. Due to the dilution of promoter shareholding, modification is necessary.

TTML has evaluated the NPV of its due interest to be Rs 850 crore approximately. The average price is Rs 41.50, and the conversion will lead the government to hold a 9.5 percent stake in the company.

Vi’s option for conversion to equity from interest does not reduce the liability but increases the chance of long-term survival by the presence of the government.

Vi will have to raise funds to pay the bank loans, expand and improve the network and obtain the spectrum for the 5G service that will be deployed this year. At the same time, the four-year moratorium will help Vi to maintain Rs 60000 crore approximately.

Last September end, Vi had a total gross debt of Rs 1.94 trillion, which involves bank debt of Rs 22,770 crore, deferred spectrum obligation of Rs 1.08 trillion, and AGR liability of Rs 63,400 crore.

Edelweiss Securities stated that Average Revenue Per User (ARPU) per month growth is a critical factor for the long-term viability of the company. By the next 3-4 years, the ARPU has to increase from Rs 109 to Rs 250 to continue the leverage.

The telecom package has given only temporary relief to the company.

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