Fri. Jan 21st, 2022

Vodafone Idea will convert its previous debts to the government into shares, giving the latter a nearly 36 per cent stake in it.

Indian telecommunications operator Vodafone Idea Ltd has said its board of directors has approved converting its previous debts to the government into shares, giving it a nearly 36 per cent stake in the country’s third largest telecommunications operator.

Under the bailout plan, it will convert the full amount of interest associated with spectrum auction installments and fees owed to the government for the use of airwaves into shares, the company said Tuesday.

The “net present value” of interest is expected to be around 160 billion Indian rupees ($ 2.16 billion), according to the company’s estimates.

Following the conversion into shares, the Indian government is expected to hold about 35.8 percent of the total outstanding shares of Vodafone Idea. Promoter shareholders Vodafone Group will hold 28.5 percent and Aditya Birla Group 17.8 percent.

Vodafone Idea’s shares fell as much as 19 percent during trading in Mumbai, the most in more than five months. Benchmark S&P BSE Sensex traded marginally higher on Tuesday.

The beleagured wireless service provider has not reported an annual profit since Reliance Jio Infocomm Ltd unleashed a brutal price war in 2016. While the latest move avoids bankruptcy for the joint venture between the Vodafone group and billionaire Kumar Mangalam Birla’s conglomerate, it will be a measure. for the company that lost customers en masse. Investors will also be concerned about what the sudden change in state control means.

“While it will ward off the immediate danger of bankruptcy, it does not bode well for any private equity investor,” said Utkarsh Sinha, managing director at consulting firm Bexley Advisors in Mumbai. “Natural concern about its performance as a semi-state-run unit aside, it sends a very negative signal to the business community.”

“Dilution in the game is something that the promoters or existing shareholders do not welcome very much. “Somewhere around 10 percent to 15 percent of the dilution would have been welcomed to the government,” said Likhita Chepa, senior research analyst at CapitalVia Global Research.

Sector disrupted

India’s telecommunications sector was disrupted by the entry of billionaire Mukesh Ambani’s Reliance Jio and forced some competitors out of the market. The sector’s problems were also exacerbated by the large sums of money owed to the government.

Vodafone Idea, a combination of the India unit of Britain’s Vodafone Group and Idea Cellular, paid the government 78.54 billion rupees ($ 1.05 billion) to members, but still owes about 500 billion rupees ($ 6.7 billion ).

India’s Supreme Court in 2020 gave telecommunications firms 10 years to 2031 to pay fees, but last year rejected a plea to seek redress to the calculation.

The bigger rival Bharti Airtel said on Friday that he would not convert interest and government money into shares.

“From the sector perspective, it is clear that the market will not shrink to two players – the incoming government does not change anything in terms of a competitive landscape, as they do not provide capital,” said Vivekanand Subbaraman, analyst at Ambit Capital , said.

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