Vodafone Idea will issue around 16 bln shares to Government of India in lieu of interest payments arising out of its decision to defer the payment of spectrum and other regulatory fees by four years, thus making the government the biggest shareholder in the company.
The move, subject to valuation confirmation by government agencies, will see Vodafone Idea emerge as the third government-led telecom service provider in India, after BSNL and MTNL, with a 35.8% stake held by the government.
BSNL is owned 100% by the government, while MTNL is owned 57% by Government of India.
UK’s Vodafone Group, currently the biggest shareholder and one of the two promoters of Vodafone Idea, will see its holding shrink to 28.5%, while the second promoter — Aditya Birla Group — will see its stake fall to 17.8% of the company after the event.
The shares are being issued to the government of India under a scheme announced by the DoT in October last year. Under the scheme, designed to provide succor to the ailing telecom sector, companies were allowed to delay all big payments to the government by four years.
However, when this is being done, they would have to pay interest on the delayed payments.
To cushion the impact further, the government said this interest could be paid by way of shares, rather than in cash.
Vodafone Idea is the only major telecom operator so far to take advantage of this pay-in-shares scheme.
The company said the present value of the interest payments works out to Rs 16,000 cr, and given that the shares were trading below their face value when the scheme was announced, the shares will be allocated at their face value of Rs 10 each.
The shares are currently priced around Rs 15 each, having risen considerably since the time the scheme was announced.
“The Board of Directors, at its meeting held on 10th January, 2022, has approved the conversion of the full amount of such interest related to spectrum auction instalments and AGR Dues into equity,” the company said in a statement today.
“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.
“The conversion will therefore 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% of the total outstanding shares of the Company, and that the Promoter shareholders would hold around 28.5% (Vodafone Group) and around 17.8% (Aditya Birla Group), respectively.”
The move is hardly surprising, given that the company had been facing financial difficulties due to the heaping of nearly Rs 55,000 cr in liabilities by a Supreme Court bench led by Arun Mishra two years ago.
Vodafone Idea also noted that its promoters have also decided to amend their mutual agreement to reduce the threshold of 21% of shares for exercising certain rights to 13%.
These are for exercising certain rights such as the appointment of directors and for the appointment of certain key officials.
“The Board has also taken note of the proposed changes to the existing 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,” Vodafone Idea said.