While struggling to hive off its stake in State-run telecom companies, the Indian government is set to own a 35.8% stake in private operator Vodafone Idea Ltd and about 9.5% stake in Tata Teleservices Ltd (Tata Tele) after converting the total amount of interest related to spectrum auction instalments and adjusted gross revenue (AGR) dues into equity.
In a regulatory filing, Vodafone Idea, a joint venture of UK-based Vodafone group and Kumar Mangalam Birla-led Aditya Birla group, says, “...the board of directors, at its meeting held on 10 January 2022, has approved the conversion of the full amount of such interest related to spectrum auction instalments and AGR dues into equity. The net present value (NPV) of this interest is expected to be about Rs16,000 crore as per the company’s best estimates, subject to confirmation by the department of telecom (DoT). Since the average price of the company’s shares at the relevant date of 14 August 2021 was below par value, the equity shares will be issued to the government at par value of Rs10 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,” it added.
Similarly, the board of directors of Tata Tele also decided to convert the total amount of interest related to AGR dues into equity.
"The NPV of this interest is expected to be about Rs850 crore as per the company's best estimates, subject to confirmation by the DoT. The average price of the company's shares at the relevant date of 14 August 2021 as per the calculation method provided in the DoT communication works out to be about Rs41.50 per share, subject to final confirmation by the DoT. In case of conversion, it will result in dilution of all the existing shareholders of the company, including the promoters. Following conversion, it is expected that the government will hold approximately 9.5% of the total outstanding shares of the company," Tata Tele says in a regulatory filing.
In October last year, the board of Vodafone Idea had approved availing the four-year spectrum payment moratorium being offered by the Union government as part of its relief package for the telecom sector.
The relief package announced by the Indian government included a four-year break for companies from paying statutory dues, permission to share scarce airwaves, change in the definition of revenue on which levies are paid and 100% foreign investment through the automatic route.
One of the options under the relief package for the government is to convert the due amount about the deferred payment into equity at the end of the moratorium or deferment period. The government had also given an option to telcos to pay the interest amount arising due to the said deferment of payment by way of equity.
According to Vodafone Idea, its governance and other rights of the promoter shareholders are governed by a shareholder’s agreement (SHA) to which the telco is a party and are also incorporated in its articles of association (AoA).
“The rights are subject to a minimum qualifying threshold of 21% for each promoter group, and in light of the conversion of interest into equity, the promoters have mutually agreed to amend the existing SHA for reducing the minimum qualifying threshold to 13% from 21% for the purpose of exercising certain governing rights, e.g., appointment of directors and relating to the appointment of certain key officials,” it says.
Further the board of Vodafone Idea says it has also taken note of the proposed changes to the existing SHA and accordingly authorised its execution and recommended changes in the 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 a shareholders meeting following the terms of the amendment to the existing SHA as approved by the board,” the company says in its regulatory filing.
In August 2021, Kumar Mangalam Birla stepped down as the non-executive director and non-executive chairman of Vodafone Idea. Mr Birla’s resignation came days after it became public that he had written to the Cabinet secretary that he was willing to hand over his stake in Vodafone Idea to government entities in a bid to keep the company operational.
As of August 2021, Vodafone Idea was already in weak financial shape and owed Rs50,399.63 crore as AGR dues and had paid Rs7,854.37 crore.
In November last year, the Union government listed for sale real estate assets of State-run telecom companies Mahanagar Telecom Nigam Ltd (MTNL) and Bharat Sanchar Nigam Ltd (BSNL) at a reserve price of around Rs1,100 crore. The department of investment and public asset management (DIPAM) website had listed some properties of the two telcos for auction as part of the Rs69,000 crore revival scheme for MTNL and BSNL, approved by the Union government in October 2019.
Both the State-run telcos are expected to identify and monetise assets worth Rs37,500 crore by 2022.