Why govt's stake in Vodafone Idea will be a gamechanger

Vodafone Idea will issue equity shares to the government at face value of Rs 10 each.

New Delhi, Feb 03: In a big relief to the troubled telco, the government has approved conversion of over Rs 16,133 crore interest dues of Vodafone Idea into equity, the company said in a regulatory filing on Friday.

With this conversion, the government is expected to hold 33.14 per cent stake in the loss making telecom firm which is reeling under debt burden of over Rs 2 lakh crore.

Vodafone Idea will issue equity shares to the government at face value of Rs 10 each.

"Ministry of Communications...passed an order today ie 3 February, 2023... directing the company to convert the NPV of the interest related to deferment of spectrum auction instalments and AGR dues into equity shares to be issued to the government of India," the filing said.

The relief for the company comes as part of the reforms package announced by the government in September 2021.

"The total amount to be converted into equity shares is Rs 16133,18,48,990. The company has been directed to issue 1613,31,84,899 equity shares of the face value of Rs 10 each at an issue price of Rs 10 each," the filing added.

Earlier, VIL had said that with conversion of dues into equity, the government will get around 33 per cent stake in the company.

Why govt's stake in VIL will be a gamechanger

The news government acquiring a major stake in Vodafone-Idea is seen as a game changer by many. Vodafone-India, currently seeking 'emergency loans' from both government and private companies to clear its dues toward Indus Towers which is the biggest company responsible for installing telecom towers.

With the government's stake in the company, it becomes easy for Vodafone to get loans from the State Bank of India (SBI), HDFC Bank, Punjab National Bankm, and IDFC, which they were reluctant to do until now.

This would help the debt burden on Vodafone which has accumulated to reach Rs 2 lakh crore.

The government's move may also help VIL gain back some of its subscribers from Reliance Jio or Airtel mobile networks.

The loss of subscribers also pushed Vodafone down in the field of setting up 5G Networks as its rivals Jio, Airtel and another state-owned company BSNL have laid out plans for their respective 5G networks in India.

The stake is also an opportunity for the government to regulate the telecommunications industry by having a direct stake in one of the major players.

The move could also generate additional revenue through dividends or capital gains from its stake in the company.

It may also strategic advantage in the telecommunications industry by having a direct stake in one of the major players.