Government plans to transform Vodafone Idea's debt into equity before 5G spectrum auction

The government is all set to  convert Vodafone Idea's (Vi) debt into shares before the 5G auctions, scheduled ti begin on July 26, as reported by a Financial Express story.

Following the equity conversion, the government would own a 32 percent interest in the financially troubled telecom operator, while promoters; ownership will be reduced to 50% from 75%.

A senior government source informed Financial Express: " The government's decision to convert Rs 16, 133 crore in interest into equity will be informed to the firm and the company's board of directors will complete this in 2-3 weeks."

The equity conversion will take place under Section 62(4) of the Companies Act. According to the report, the telecom will give preference shares to the government, which will be kept by the Department of Investment and Public Asset Management (DIPAM).

In January, Vi's board of directors advised the Department of Telecom(DoT) that it would prefer to convert the interest on its adjusted gross revenue(AGR) and spectrum dues into government stock. The equity's net present value (NPV) is anticipated to be around Rs 16,133 crore.

Why is equity conversion crucial for Vodafone Idea?

The equity conversion holds prominent importance for Vi as the CEO of Vi, Ravinder Takkar, recently stated that the company is on the verge of obtaining RS, 20,000 crore from outside investors, but that is stuck because the government hasn't finished the process of buying stock in the telco. Only after that process is completed and everything else is in order, outside investors may decide to purchase a part in the company.

Vodafone Idea's participation in the forthcoming 5G spectrum auction is dependent on the equity conversion. Vodafone Group Plc and the Aditya Birla Group have invested about Rs 4,500 crore in the company so far, with the telco still needing to raise almost Rs 20,000 crore.

Furthermore, Vi has declared that its board of directors will meet on June 22, to discuss raising funds of about Rs 500 crore through equity shares or convertible warrants on a preferential basis from one or more Vodafone Group UK firms.