Vodafone Idea's Debt to Equity Conversion to Make Government Largest Shareholder With 36 Percent Stake

The Government of India is set to become the largest shareholder of Vodafone Idea with 35.8 percent stake as the company's board has approved conversion of interest on deferred spectrum and Adjusted Gross Revenue (AGR) dues into equity, Vodafone Idea said on Tuesday.

The debt-laden Vodafone Idea, a joint venture of UK-based Vodafone Group and Kumar Mangalam Birla-led Aditya Birla Group, has opted for conversion of interest on deferred spectrum and Adjusted Gross Revenue (AGR) liabilities into equity.

The conversion will result in dilution to all the existing shareholders of the Company, including the Promoters.

Following conversion, it is expected that the Government will hold around 35.8 percent of the total outstanding shares of the Company, and that the Promoter shareholders would hold around 28.5 percent (Vodafone Group) and around 17.8 percent (Aditya Birla Group), respectively, Vodafone Idea said in a statement.

The share price of Vodafone Idea slumped following the announcement. Trading in Vodafone Idea started sharply down at Rs. 13.40 at the Bombay Stock Exchange (BSE) on Tuesday against the previous day's close at Rs. 14.85. The company's share price plummeted to a low of Rs. 12.05 in the morning trade, which is 18.85 percent lower from its previous day's close.

The company's share price recovered later in the day. At 11.10am at the Bombay Stock Exchange (BSE) Vodafone Idea share was trading at Rs. 13.

The Board of Directors of Vodafone Idea, at its meeting held on 10th January 2022, approved the conversion of the full amount of such interest related to spectrum auction instalments and AGR Dues into equity.

"The Net Present Value (NPV) of this interest is expected to be about Rs. 16,000 crore as per the Company's best estimates, subject to confirmation by the DoT. Since the average price of the Company's shares at the relevant date of 14.08.2021 was below par value, the equity shares will be issued to the Government at par value of Rs. 10 per share, subject to final confirmation by the DoT," Vodafone Idea said in a regulatory filing to the stock exchanges.

Union cabinet on September 15 approved a slew of measures to support the cash-strapped telecom firms. The relief measures include a four-year moratorium on payment of spectrum and AGR dues. The telecom firms have also been given the option to pay the interest amount arising due to the deferment of payments by way of issuing equity to the government.

Following the government's announcement Bharti Airtel and Vodafone Idea opted for the four-year moratorium.

However, Bharti Airtel recently decided to pay the interest amount to the government instead of issuing the equity.

After the conversion of the dues into equity, the Government of India will become the largest shareholder of Vodafone Idea. This will require changes in the company's Articles of Association.

"The governance and other rights of the Promoter shareholders are governed by a Shareholders Agreement (SHA) to which the Company is a party and are also incorporated in the Articles of Association of the Company," Vodafone Idea said.

The rights are subject to a minimum Qualifying Threshold of 21 percent for each Promoter group, and in light of the conversion of interest into equity, the Promoters have mutually agreed to amend the existing SHA for reducing the minimum Qualifying Threshold from 21 percent to 13 percent for the purpose of exercising certain governing rights e.g. appointment of directors and relating to appointment of certain key officials, etc.

Vodafone Idea said its Board has also taken note of the proposed changes to the existing Shareholders Agreement (SHA), and accordingly authorised execution of the same and also recommended changes in the Articles of Association (AoA) to give effect to the changes in the SHA.

The amendment to the AoA shall be subject to the approval of shareholders in general meeting, for which the Board has authorised officials of the Company to decide the date of shareholders meeting in accordance with the terms of the amendment to the existing SHA as approved by the Board, the company said.