Will government rescue Vodafone Idea turning as its largest shareholder?

The hope of government rescuing Vodafone Idea Ltd (VIL) by converting its interest on dues into equity has revived investor interest in the debt– strapped telecom operator. On Wednesday, the stock rallied by a whopping 13.27% with an intraday high of ₹8.96 apiece and ended at ₹8.65 apiece, up by 9.36% on BSE. The stock had hit its 52-week low of ₹7.75 in morning trade before staging a comeback. The market cap of the company stood at ₹27,920 crore.

The government wants the company to share a proper investment plan, including promoter fund infusion before its equity conversion. The promoters—Adity Birla Group and Vodafone Plc—already infused about ₹5,000 crore. The company has been in talks with banks including State Bank of India (SBI) to raise about ₹20,000 crore. But banks want the government to check in first.

"Investors hope that there will be a middle path. The promoters, government and banks together should find out a solution to continue the operations of VIL," says an executive.

VIL is severely in shortage of capital to make vendor payments and the 5G rollout. It was about a year back, the board of VIL opted to convert the interest on its dues into equity as part of the Telecom Relief Package. The government was supposed to convert ₹16,130 crore accrued interest on deferred adjusted gross revenue (AGR) as 33% equity. The equity conversion will make the government the single largest shareholder in the company.

The company wanted to raise ₹20,000 crore via a mix of debt and equity, for its capital expenditure, 5G rollout and vendor payments. Fundraising remains critical for the company's competitiveness as the telecom operator has accumulated losses to the tune of ₹1.6 lakh crore in the last four financial years.

Net debt (excluding lease liabilities) stood at ₹2.2 lakh crore as of September 30—comprising of deferred spectrum payment obligations of ₹1.37 lakh crore (including ₹17,260 crore towards spectrum acquired in the recent spectrum auction and AGR liability of ₹68,590 crore that are due to the government, and debt from banks and financial institutions of ₹15,080 crore.)

The stock has been in focus this week after VIL and its vendor ATC Telecom Infrastructure agreed to extend the last date for subscription of ₹1,600 crore optionally convertible debentures to February 28. VIL's proposal to issue ₹1,600 crore debentures to mobile tower vendor ATC Telecom Infrastructure had lapsed in the absence of any response from the government on the conversion of interest dues into equity.