Government Offers Rs 37k Crore Lifeline to Vodafone Idea, Becomes Major Shareholder

New Delhi/ Mumbai:

To support Vodafone Idea, the government has chosen to convert Rs 36,950 crore of spectrum dues into equity. This decision makes the government the largest shareholder in the telecom company, holding nearly 49% of the shares.

• After the new share issuance to the Centre, promoters’ holding will decrease from 39% to 26%.
• Vodafone Group Plc’s stake in the Indian unit will drop to 16% from 29%.
• Aditya Birla Group chairman Kumar Mangalam Birla and his affiliated entities’ ownership will lower to 9.4% from 10%.

However, the promoters will continue to have operational control of the country’s third-largest mobile service provider, according to a source who spoke to TOI.

Importance of the Latest Bailout

The latest bailout is essential for the company as it will free up cash flow, which would have been used for government dues, and allow it to invest in capex, particularly the rollout of 5G services, where it is currently absent, except in Mumbai. Improved services will help increase the billing per customer.

• The company’s average revenue per user is around Rs 160 a month – two-thirds the level of rival Bharti Airtel (Rs 245) and 25% lower than Reliance Jio (Rs 203).
• As of December, Trai data showed Vodafone Idea’s market share at 18%, compared with Reliance Jio’s 40% and 33.5% for Airtel.

Government’s Move to Decrease Cash Outgo

The government’s move will also decrease the cash outgo as interest is calculated on the outstanding, further increasing the liability. During a presentation to analysts, the company management estimated government dues at around Rs 2.1 lakh crore. In the next fiscal year, it was required to pay close to Rs 30,000 crore to the government towards spectrum and AGR dues, with the amount projected to rise further in 2026-27. These liabilities are, however, expected to decrease now.

Comfort for Banks

The latest conversion is also expected to provide comfort to banks, which may offer fresh debt, especially after the recent fundraising by Vodafone Idea.

Ensuring Competition in Telecom Sector

The government has been supporting Vodafone Idea as well as BSNL to ensure that there are at least three private players and a strong state-run entity to maintain healthy competition and provide consumers with enough choices. The fear is that the sector is turning into a duopoly with Reliance Jio and Bharti Airtel dominating the market.

Although the government will become the largest shareholder, it would still be classified as a public shareholder. In 2022, when the Centre had initially acquired a 33% stake by converting outstanding interest dues to equity, it was exempted from making an open offer to Vodafone Idea shareholders.