Vodafone Idea Lenders to DoT: Converting Debt to Equity an Option to Save Telco

Lenders led by the SBI have said that converting the debt of Vodafone Idea to equity can save the telco. The lenders have presented the idea concerned over their exposure in the telco.

Converting Debt to Equity at Vodafone Idea

The lenders met with the DoT on Friday to discuss the stress in the telecom sector. An official aware of the matter said, “DoT asked banks about their plans regarding Vodafone Idea…they said although no major default has happened, converting debt to equity is an option".

That did not stop the lenders from pushing the DoT to take steps to save the telco. The lenders said that the government stands to lose a lot more than the banks did. Last week, Kumar Mangalam Birla stepped down from his position at Vodafone Idea; this meeting was the first such meeting after that.

“We are hopeful that DoT and the government will come up with a solution because they have significantly higher dues,” a lender said. As of 31st March, Vodafone Idea owes ₹1.57 trillion to the government. This includes ₹96,270 crore in spectrum payments, while the rest in AGR dues. Another lender added that the way forward is to restructure the funded exposure and convert the unsustainable debt into equity.

In comparison, banks have a total exposure of a little over ₹35,000 crore, of which the funded exposure is close to ₹13,800 crore, which is under risk of default, the lenders said. SBI has an exposure of about ₹11,000 crore, for instance.

Trouble Brewing at Vodafone Idea

Birla stepped down within two months of his fateful letter to the government. In the letter, he offered the government his stake in the telco to keep it afloat. The government hasn't responded to his offer; however, it has been working on a relief package for the sector. However, experts say that such a package will not help Voda Idea meet its cash needs, which are more pressing.

The telco had also recently wrote to the DoT seeking a year's moratorium on its spectrum payments. The telco cited its inability to generate enough cash from operations as a reason for the same. The cash problem is such a huge one that the telco now stares at a potential $3.1 billion shortfall in cash flows in FY23. Moreover, is cash balance was only ₹350 crore at March's end.

SBI Chairman Dinesh Khara had said that the bank will take all necessary measures to insulate its balance sheet from stress in telcos. He said that as of now, Vodafone Idea isn't a stressed account; however, they were watching the development closely.

Reliance Communications Still a Headache for DoT and Lenders Alike

Incidentally, in the same meeting, the group of lenders have also urged the telecom department not to cancel RCom's telecom licences. They said that such a move will finish off its entire resolution process under IBC. The DoT has maintained that it won't renew license unless the telco clears its dues of about ₹26,000 crore first.

However, the Delhi High Court had directed DoT not to revoke the licenses of the telco for about 10 days, back in June. Since then, the matter has been contested in the NCLT, where a hearing will take place this week.

As per the resolution plan, the lenders expect around ₹20,000-23,000 crore from the sale of assets in RCom and its two units – Reliance Telecom and Reliance Infratel. Of this, a large chunk will come from spectrum sales. However, if DoT cancels RCom's license, the telco will have to surrender the said spectrum, which will instantly evaporate over half of the expected income.