Vodafone Idea: A case of jumbled signals and crossed wires

The statement last week by Communications Minister Ashwini Vaishnaw that Vodafone Idea requires capital infusion and that equity conversion by the government is not the only requirement may be an indication of a schism between the government and the company in the aftermath of the revival package announced in September 2021.
The government’s plan was to give telecoms cash flow relief by postponing payment of adjusted gross income and spectrum dues for four years while protecting the net present value. Operators were offered the option of paying the accumulated interest on the postponed payment to the government in the form of equity. In Vodafone Idea’s case, the total came to Rs 16,130 crore. Following the conversion to equity, the government would become the company’s single largest stakeholder, with a stake of roughly 33%, while the promoters’ interest would decrease from 74.99% to 50%. However, the government has said unequivocally that it would neither participate in management or seek board participation.
While Bharti Airtel had also chosen to delay the payments, Vodafone Idea was the sole operator to give the government shares in exchange for interest payments.
The signals were muddled here, and the standoff started.
Apart from safeguarding banks and its own dues, the government believed that by providing relief, Vodafone Idea would be able to obtain cash. Vodafone Idea, on the other hand, anticipated that the government will first convert the dues into stock, providing reassurance to investors wanting to engage in the firm.
As the telecom urged the government for equity conversion, authorities perceived it as a pre-condition that was not stated in the revival package’s conditions. Furthermore, government authorities stated that Vodafone Idea’s promoters had agreed to investing Rs 10,000 crore in the firm. They have barely invested Rs 4,900 crore so far. The company stated that it required Rs 25,000 crore to get through the crisis, with the remaining Rs 20,000 crore coming from investors once the government turned the dues into equity.
According to official sources, concerns began to arise in government circles that if the equity conversion was completed but the promoters failed to put money in or bring in new investors, the government would be forced to manage the firm. This viewpoint was supported by the fact that the telecom package also stated that if corporations failed to pay the main amount at the conclusion of the four-year period, the government would have the option of turning even that amount into equity. In government circles, there was concern that in the case of Vodafone Idea, this discretion would become mandatory.

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