Vodafone Idea's debt conversion may be the last resort for government

Centre not keen on upping stake, wants telco to raise investments on its own

The central government will study the matter of further converting Vodafone Idea’s (Vi’s) dues into equity only if no other options are available, officials said. The Centre is not keen to raise its stake in the financially beleaguered telecommunications (telecom) operator and wants it to first raise investments on its own, they added.

 

Since early 2024, Vi Chief Executive Officer Akshaya Moondra has repeatedly said the terms of the 2021 financial relief package allow it to seek further conversion of dues owed to the government into equity. Regarding his latest letter to the Department of Telecommunications (DoT) seeking the same, officials said the telecommunications company (telco) was also expected back then to raise fresh capital from strategic sources on priority.

 

“The company has already done a significant fundraise. However, it has yet to secure major funds from banks and other lenders, which are needed to ensure its network expansion and long-term financial health. This remains a major hurdle before talks (on equity conversion) are taken further,” a DoT official said.

 

Meanwhile, Vi continues to engage lenders to tie up debt funding for its long-term network expansion. In September 2024, Moondra had said debt funding talks would wrap up in the ensuing four to eight weeks.

 

But the issue stands at an impasse for Vi since bankers have advised it to raise equity before seeking loans. Despite the telco raising ₹26,000 crore in equity, bank executives have earlier stressed concerns over the company’s multiple payment liabilities to the government, vendors, and tower companies. 

 

Queries mailed to Vi and the DoT did not elicit a response. The telco completed India’s largest follow-on public offer at ₹18,000 crore in April last year and conducted multiple rounds of preferential share issuance to promoters and vendors Nokia and Ericsson in the following months. The promoters also put in ₹4,000 crore. Most recently, it raised ₹1,980 crore from entities belonging to promoter Vodafone Group Plc through a preferential issue in January this year.

 

As part of the telecom reforms package approved by the Cabinet in September 2021, the government had allowed financially stressed telcos to convert a part of their debt owed to the government into equity. In February 2023, the government finally assented to Vi converting ₹16,000 crore worth of interest liability payable to the government into equity after 16 months of discussions on the issue.

 

“The reforms package had allowed two things. One was converting the interest on the moratorium into equity, which Vi has opted for. The second was the conversion of the moratorium principal into equity. The decision is to be taken when the four-year payment moratorium ends in September 2025. So that route is open to the company,” an industry insider said.

 

Mounting dues

 

On the other hand, not providing emergency relief to Vi may compromise the massive dues it owes to the government, officials indicated. Dues on the principal amount remain under moratorium until October 2025, after which Vi will have substantial payment obligations. Between then and March 2026, the company has to pay ₹12,000 crore to the government, taking into account both principal and interest. Subsequently, it needs to pay ₹43,000 crore annually for five years, from 2026-27 to 2030-31.

 

“The government has always stressed that it is committed to a strong telecom sector with financially healthy players. But it also needs to ensure dues owed to the public exchequer are received on time,” another official said.

 

At the end of the third quarter (October-December) of 2024-25, Vi’s dues to banks and financial institutions had reduced to ₹2,330 crore, down from ₹7,620 crore in the year-ago period. However, the company has deferred spectrum payment obligations of ₹1.38 trillion and an adjusted gross revenue liability of ₹69,020 crore due to the government.