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Government to become Vodafone’s ideas largest shareholder with 33% stake

The government of India became the sole largest stakeholder in the firm when it agreed to convert over Rs 16,000 crore in debt into equity, sending shares of Vodafone Idea up over 20%.

Shares of Vodafone Idea increased more than 20% after the government decided to convert over 16,000 crores in AGR interest dues into equity. In a statement with the Bombay Stock Exchange on Friday, The telecom operator declared that it has received permission from the Center to issue shares worth Rs 16,133 crore at an issue price of Rs 10 each.Centre to become biggest shareholder in Vodafone Idea with 33% stake

The government of India would own around 33% of Vodafone Idea after converting its outstanding debt of Rs 16,133 crore to equity, making it the telecom company’s single largest shareholder. The promoters’ share will decrease from around 75% to roughly 50%.

The government is not paying Vodafone Idea’s debts, according to FM Nirmala Sithraman, who made this clear during a news conference. She stated that the corporation is not in a position to pay the government its dues. We are buying the company’s stock because of this. This indicates that we own stock in the business. We will share in the company’s profits when they occur.

With about Rs 2.2 lakh crore in debt—around Rs 1.5 lakh crore in AGR dues (use and licensing fees assessed by the Department of Telecommunications on telecom operations) and roughly Rs 15,000 crore in bank debt—the telecom operator is trying to make ends meet. Without the government intervening to assist, there was a real possibility that the cash-strapped telecom industry might fail.

Since the government announced a relief plan for the telecom industry in September 2021, which allowed for the conversion of delayed AGR dues owing to the government into equity, the telecom business has been anticipating this.

After getting confirmation from the corporation that they were dedicated to the company and would provide the required finances, the government approved this conversion of dues into equity. Union Minister of Communications Ashwini Vaishnaw stated, “We needed a solid promise that the Aditya Birla Group will run the organisation and make necessary investments. Birlas agreed, therefore we made the decision to convert. Three companies, including BSNL, should be present in India to encourage healthy consumer competition.

In addition to protecting its debts and the thousands of crores owed to banks, the government hoped to avoid a duopoly. If Vodafone-Idea went bankrupt due to debt, Jio and Airtel would be the only companies with the giant’s market share. As two companies might control market pricing in the absence of a third participant to maintain equilibrium, this might turn out to be unjust to consumers.The Government Is Almost At A 33 Per Cent Stake In Vodafone Idea And Will Soon Become Its Largest Shareholder. - Inventiva

Analysts predict that this action will only partially address the issue. The corporation is in debt to the tune of more than Rs 2 lakh crore. Around Rs 1.5 lakh crore in AGR debt is owed to the government alone. This action converts only the remaining AGR interest of approximately Rs 16,000 crore.

According to Rohan Dhamija of Analysys Mason, VI requires about Rs 45,000 crore of additional equity investment to strengthen its 4G operations and develop 5G networks to compete with Jio and Airtel and remain viable. Its already weakened balance sheet would be further strained by adding new loans to the debt load.

Analysts, on the other hand, think that this is a huge step in the right path to help the firm recover. Investors would be more confident and motivated to inject capital into the firm if the government sent a clear message that it supported Vodafone Idea and was taking decisive action to ensure the company didn’t fail. With this, the business could be able to make certain supplier debt payments and fund its 4G ambitions.

The Union government has mandated the sale of equity shares to settle 16,133 crores in deferred adjusted gross revenue (AGR) and spectrum payments with Vodafone Idea Ltd., India’s third-ranked telecom company. The completion of the equity conversion plan was announced more than a year. The first decision-maker, the government, gives Vodafone Idea some wiggle room. a debt burden of 2 trillion pounds as of September 2022. The losing telco has tried to obtain 20,000 crores in loans and equity since 2021.Government okays Vodafone-Idea merger to create India's largest largest telecom operator | Business News,The Indian Express

“We needed a firm assurance that the Aditya Birla Group would run the company and get the necessary funds.” The Birlas agreed, so we decided to convert. According to a statement by Union Telecom Minister Ashwini Vaishnaw, we want India to have three players, including BSNL, to ensure strong competition for customers.

Vodafone Idea stated that the business will take “all essential procedures promptly” for the issuance after the government instructed that 16.13 billion shares with a face value of $10 be issued to it. According to a representative with knowledge of the circumstances, before approving the stock conversion, executives from Vodafone Idea discussed the company’s competitiveness plan with government lawmakers.

“There was a delay; we need them to provide a thorough business strategy.” After our discussions with them, they told us about it. The insider said, under the condition of anonymity, that inviting bankers had also been discussed. Under the equity conversion plan put up in January 2022, the promoters’ shareholding in Vodafone Idea would have decreased from around 75% to 50% to 33% to be held by the government. What the Center’s final ownership will be, though, is unclear given all of the changes that have taken place in the last year.Govt set to become largest shareholder in Vodafone Idea, get stake in Tata Tele - Times of India

American Tower Corp. and Indus Towers, the carrier’s tower providers, have not been paid by the struggling airline (ATC). When it presented ATC with optionally convertible debentures worth 1600 crore rupees, it demanded better and more spaced-out payment terms. It will make use of the funds to pay off certain unpaid bills owing to the tower operator for utilizing its resources to lease out mobile phone services in India. Vodafone Idea currently owes ATC more than 3,000 crores, while Indus Towers, the largest tower supplier in the world, owes an additional 7,000 crores.

edited and proofread by nikita sharma

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