Vodafone group will continue to manage and control the company and its operations
The Government of India has no desire to run Vodafone Idea as indicated in the interactions with the company so far, according to Ravinder Takkar, MD & CEO, Vodafone Idea Ltd.
The government is set to own a 35.8 per cent stake in Vodafone Idea, becoming the largest shareholder in the company, after the telecom operator’s decision to offer its equity stake against dues related to spectrum auction instalments and AGR payments.
“In all of our interactions with the government leading up to the package itself, and even after they announced the package, I think it has been very clearly stated by the government that they do not want to run this company. They do not have the desire to take over the operations of this company. They want three private players in the market, they certainly do not want a duopoly or a monopoly,” Takkar said at a press briefing on Wednesday.
“The government has been very consistent in telling us that they want the promoters to run this company going forward as well. I don’t expect that to be deviated, I expect them to continue with this position. I can also say that the VIL promoters, which is the Aditya Birla group and the Vodafone group will continue to manage and control the company and its operations as they have been doing in the past,” he further added.
The conversion will result in massive equity dilution for all Vodafone Idea (Vi) shareholders with British telecom giant Vodafone Plc’s shareholding coming down to 28.5 per cent from 44.4 per cent and Aditya Birla Group’s stake dropping to 17.8 per cent from 27.7 per cent at present.
Stake offer to Govt
In October, the Department of Telecom (DoT) had announced a relief package under which operators were given a four-year moratorium on payment of spectrum and AGR dues. Telecom companies were also given the option of converting the interest payable for the four years into equity. In the case of Vodafone Idea, the NPV of the interest payable is expected to be about ₹16,000 crore for which the operator has offered 35.8 per cent stake to the government.
The shares may be held through the Statutory Undertaking of the Unit Trust of India (SUUTI) on behalf of the government or by any trustee-type or other suitable arrangement. Since the average price of the company’s shares was below par value on the cut-off date, the equity shares will be issued to the government at par value of ₹10 a piece, subject to final confirmation by the DoT.
Explaining the rationale behind the decision, Takkar said, “The company has a significant amount of debt, we have a stretched balance sheet. And I think anytime there’s an option to convert that debt into equity is considered positive for the company. Especially considering the fact that most of the debt is to the Government of India, it was clear to us that actually converting some of that debt into equity is a good option for the company to reduce debt going forward. And hence, the board has decided to make this conversion and avail of the to the fullest extent, the option that was offered by the government.”
“The government had made this offer to the industry, to be supportive of the industry, and some of the challenges that the industry was facing. And we were thankful for that, and we’ve taken advantage of that. But at the same time, I also want to mention that we will hope that the government in subscribing to this equity will also make a return on this equity stake. So in a way, my hope is that it is a win win situation for every side, in this particular conversion,” he further added.
Further, clarifying on the timeline for the announcement, Takkar said, “The timing of this is very much related to the timelines that were laid out by the government in its reform package.”
“Given the complexity of the calculations and the numbers and the amount of data that has been shared, I’m sure there will be some engagement in the DoT to clarify, and to some extent, hopefully finalize and certify these numbers,” he said.
“We believe the entire exercise will be completed in the coming months, post which the shares will be allocated to the Statutory Undertaking of the Unit Trust of India on behalf of the Government of India,” he added.
Takkar further added that the government had no intention of nominating Board members and that the Board will continue to function as is.
“There is no condition in the letter that the DoT has written to us in the option that we have chosen to convert this interest into equity, which allows for a board seat for the Government of India. So in that regard, the government has shown no intention, or they believe that they have no understanding in nominating any board numbers,” he said.
“We don’t expect any board members to be there. So again, the board of the company will continue. And all the operations as they have been will continue the way they have been so far,” he added.
The promoters have mutually agreed to amend the existing shareholder agreement in light of the conversion of interest into equity and reduce the minimum Qualifying Threshold from 21 per cent to 13 per cent for the purpose of exercising certain governing rights such as the appointment of directors and relating to the appointment of certain key officials etc
“They (promoters) have accepted a significant dilution, actually to support the balance sheet of the company going forward, which again, is a very strong commitment from the existing promoters to say that they want to make sure that they that the company stays healthy, and they are committed to continuing to progress the company forward in a very positive direction,” Takkar said.
Impact on fundraising
According to Takkar, the decision will also have a positive impact on fundraising efforts of the company.
“We have been engaged with investors for several months now. I can confirm, again, very strongly that there is a huge interest among international investors in investing in India. They’re interested not only in India, but they’re also interested in the telecom sector, and we’ve had interactions with several of them,” he said.
Takkar further discussed three main concerns coming in from investors- does the government want three fibre players in the sector? Is the government going to support reform in the sector? And would the government support the sector from liquidity and a financial perspective?
“Now especially on the liquidity front with the four-year moratorium, which was offered and we have accepted, as well as this equity conversion option, which has been offered now we have accepted, I think it’s clear that most of these things that the investors were concerned about are starting to actually happen or have been happening now as we go forward,” Takkar said.
“And I think clearly, this should be a positive sign for the investors and should help relieve some of the fears that they had,” he added.
“This process is positive for the fundraising point. Certainly, it has been positive from investor feedback. And I would hope that we would continue forward as we have been on the fundraising process,” he further added.