Troubled telco Vodafone Idea (Vi) needs capital infusion and equity conversion by the government is not its only requirement, communications minister Ashwini Vaishnaw said on Thursday. This seems to be a clear indication that the government wants promoters of the telco to first put in more money before it takes the next step.
Vaishnaw added that discussions are on as to how much capital infusion would be required and where it would it come from. “Vodafone Idea has many requirements. It has a particular requirement of capital. So, how much capital is needed, who will infuse, all these things are under discussion,” the minister said.
“The responsibility of capital has to come from various sources. The company just doesn’t require conversion, it requires capital. All these are complex issues,” he said, adding that no timeline can be provided for such matters.
Though there have been speculations for quite sometime now that the government has told the promoters of Vodafone Idea to first infuse funds and only after that would there be any equity conversion by them, it is for the first time that the minister has spoken on the subject and indicated the same.
According to sources, Aditya Birla Group chairman Kumar Mangalam Birla had met the telecom minister in Delhi on Tuesday, where he was told the same thing. Asked about the meeting, Vaishnaw said: “Our officials keep meeting executives of Vodafone Idea on a regular basis.”
The government had come out with a revival package for telecom service providers in September 2021, which entailed giving operators a four-year moratorium on payment of spectrum and adjusted gross revenue (AGR) dues. It had a provision that operators could offer the government equity in lieu of the accrued interest on the deferred amount.
Vodafone Idea’s deferred interest payment amount works out to be Rs 16,130 crore, and in January 2022, the telco opted for equity conversion by the government.
Vi has said it needs to raise around Rs 25,000 crore to tide over the immediate financial crunch. After the government’s revival package, the promoters have already put in Rs 4,900 crore and said that investors are willing to put in the balance Rs 20,000 crore, but only once the government does the conversion of debt into equity. This, the company says, would provide comfort to the investors.
However, sources told FE that there was no such provision in the package that the government would first convert the equity and only then the company concerned would infuse funds.
Upon conversion of equity, the government will become the single-largest shareholder in Vodafone Idea with around 33% stake, while the promoters’ holding will come down from 74.99% to 50%. At the time Vodafone Idea opted for equity conversion, the government had made it clear that it won’t be part of the management and will not have any representative on the company’s board.
The government’s apprehension, according to sources, is that in the event the promoters fail to raise funds, it will be saddled with the ownership of the company. Further, there’s a provision in the revival package that if at the end of the four-year moratorium the company fails to pay the principal amount, the government would have the discretion to convert that amount also into equity.
Vodafone Idea’s net loss widened to Rs 7,595.5 crore during the July-September quarter due to higher finance cost and network operating expenses. According to the company’s auditors, the financial performance has impacted its ability to generate the cash flows that it needs to settle its liabilities as they fall due.
At the end of the July-September quarter, Vodafone Idea’s gross debt (excluding lease liabilities and including interest accrued but not due) was at Rs 2.20 trillion, comprising deferred spectrum payment obligations of Rs 1.36 trillion, AGR liabilities of Rs 68,590 crore that are due to the government, and debt from banks and financial institutions of Rs 15,080 crore.
Due to the funds crunch, the company has not been able to launch 5G services which its peers Reliance Jio and Bharti Airtel have already started.
According to the company, Rs 9,600 crore of debt is payable by September 2023, while its gross cash balance as of September 2022 is Rs 200 crore. Analysts have estimated that the company will have a cash shortfall of Rs 6,400 crore by September 2023 assuming that all debt is repayable.