Sebi exempts government from open offer obligation in Vodafone Idea deal

Markets regulator Sebi on Thursday exempted the government from making an open offer to the shareholders of Vodafone Idea Ltd (VIL) following its proposed acquisition of just over 34 per cent stake in the telecom operator on the conversion of spectrum dues into equity.

In its order, Sebi Whole Time Member Ashwani Bhatia said, "The acquisition of shareholding by GoI in VIL is proposed with the sole intent of protecting the larger public interest."  The conversion -- which would raise the government's holding in the company to nearly 49 per cent from 22.6 per cent at present -- would enable VIL, a major TSP, to continue servicing its customer base and increasing telecom penetration in India.

While giving exemption, Sebi noted that at present GoI has no intent to participate in the management or the board of VIL and there will be no change in control of the telecom firm. Further, such holding will be classified as public shareholding.

Last month, the government threw a lifeline to the troubled telecom operator as it decided to convert Rs 36,950 crore of VIL's outstanding spectrum auction dues into equity, under the provisions of the September 2021 telecom reforms package.

The increase in shareholding of GoI to 48.99 per cent would in ordinary course trigger an open offer obligation under the Takeover Rules, but the regulator has granted an exemption to the government.

Under the regulations, entities acquiring 25 per cent or more stake in a listed company have to make an open offer to shareholders.

In its order, the regulator noted that a substantial sum of money is due to be paid to the government by VIL, which may place a potential burden on the financials of the company. Also, an open offer obligation on the part of GoI involves huge sums of cash outflow.

It cited the public policy and public interest involved in the entire transaction and took into cognizance various steps taken by the government in easing liquidity and cash flow to telecom service providers as well as to help various banks having substantial exposure to the telecom sector.

"Considering the fact that a substantial sum of money is due to be paid to the GoI by VIL, which may place a potential burden on the financials of VIL, and also that an open offer obligation on the part of GoI involves huge sums of cash outflow (from GoI), I find that it would be appropriate to grant exemption to the acquirer (GoI) from open offer requirements as laid down ...the Takeover Regulations, 2011," Bhatia said.

As part of bailing out the debt-burdened telecom sector, the government, in September 2021, gave telecom operators an option of paying interest for the four years of deferment on deferred spectrum installments and Adjusted Gross Revenue (AGR) dues by way of conversion of dues into equity.

VIL had opted for the conversion of debt into equity under the government's bailout package.