Govt set to become largest shareholder of Vi, to own 35.8% stake
- IBEF
- January 12, 2022
The government is expected to become Vodafone Idea's largest stakeholder after opting to convert interest on delayed spectrum and adjusted gross revenue dues into equity.
The Centre gave telecom businesses a four-year freeze on spectrum and AGR dues in its telecom reform package last October. Companies were also given the opportunity to convert deferred liability interest into equity.
The telecom company's board of directors opted to execute the option on Monday and approved the conversion of the whole amount of interest (with a net present value of about US$ 2.16 billion) into equity. Because the average price of the company's shares was less than the par value on the relevant date set by the government under the reforms package, the shares would be allocated to the government at a par value of Rs 10 (US$ 0.14) per share.
“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 company's largest shareholder, it may not be engaged in its management. Vi's CEO Ravinder Takkar stated that it would be wrong to claim that the firm will become a public sector enterprise. “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 would allow Vi to save almost Rs 60,000 crore (US$ 8.11 billion), it will need to generate cash to pay its bank loans, develop and extend its network, and purchase spectrum for the 5G service, which will be launched this year.
Vi had gross debt of Rs 1.94 trillion (US$ 26 billion) at the end of September, which included Rs 1.08 trillion (US$ 15 billion) in postponed spectrum obligation, Rs 63,400 crore (US$ 8.58 billion) in AGR liabilities, and Rs 22,770 crore (US$ 3.08 billion) in bank debt. To secure their governing powers, the promoters have also chosen to alter the shareholder agreement and articles of association. This change is required as a result of the dilution of promoter holdings.
“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 plummeted and is now trading 14.8% down on the BSE at Rs 12.65 (US$ 0.17), compared to its previous close.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.
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