The government will convert its debt into equity in Vodafone Idea ahead of 5G auctions scheduled from July 26, according to a Financial Express report.
After the equity conversion, the government will hold a 32% stake in the financially stressed telecom operator, while promoters’ holding will dilute to 50% from 75%.
“The decision of the government to convert the interest of Rs 16,133 crore into equity will be notified to the company and the company’s board will accomplish this in 2-3 weeks,” a senior government source told the publication.
The equity conversion will be done under Section 62 (4) of the Companies Act. The report added that the telco will issue shares to the government on a preference basis, which will be held by the Department of Investment and Public Asset Management (DIPAM).
In January, Vodafone Idea’s board had informed the department of telecommunications (DoT) that it will opt for converting the interest on its adjusted gross revenue (AGR) and spectrum dues into government equity.
This followed a telecom revival package announced by the government in September 2021. The net present value (NPV) of this interest is expected to be about Rs 16,133 crore.
The completion of the fund-raising exercise is crucial for the company if it wants to participate in the auctions. So far, the company’s promoters – Vodafone Plc and Aditya Birla Group – have pumped in a total of Rs 4,500 crore into the company as their equity contribution and the telco needs to raise another Rs 20,000 crore.
“We are probably in a good position as we ever were in closing those two sources of funding (lenders and investors) as well and hopefully, we have something to announce in the coming period. We are in detailed discussions with lenders’ consortium,” Takkar had added.
“Since the government’s stake will be more than 25%, it will need to seek exemption from the Securities and Exchange Board of India from making an open offer for an additional 26%,” government officials said. According to Sebi norms, the acquisition of 25% or more 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 it’s holding in the company will be treated as ‘public shareholding’ and not promoter’s. It will neither participate in the management nor have a board representation.
Cash-strapped telecom operator Vodafone Idea is planning to raise Rs 500 crore from Vodafone Group, one of the promoters.
“A board meeting is scheduled to be held on Wednesday to consider among other things a proposal for raising of funds aggregating up to Rs 500 crore by way of issuance of shares and/or convertible warrants on a preferential basis to one or more entities belonging to Vodafone Group (one of the promoters of the company),” the telecom operator said in a filing on June 19.
On Friday, shares of Vodafone Idea settled at Rs 8.21 apiece on the BSE, down 3.53 percent, while the benchmark Sensex closed 135.37 points or 0.26 percent lower at 51,360.42.
Reportedly, e-commerce giant Amazon is also in the running to invest up to Rs 20,000 crore in the struggling telecom operator.
Vodafone Idea has been on the hunt for investors to raise fresh capital to pay down its debt and invest in its network after returning from the brink of bankruptcy following help from the government.