On Tuesday, January 11, 2022, Vodafone Idea made a regulatory filing in which they mentioned the board of directors’ approval to convert the whole amount of AGR dues and interest on spectrum installments into equity.
Pursuant to such conversion, the Government of India will hold the stakes in Vodafone Idea. However, the operations will remain in the hands of the original private owners, Vodafone, and Idea.
The company’s Net Present Value (NPV) of its interest might come around Rs. 16,000 Crores according to Telco’s estimation. However, this calculation will be subject to the Department of Telecommunications’ approval.
Valuation is a bit of a concern since the company’s market price cannot be considered as it was trading below the par value on the relevant dates. Therefore, the valuation for the issue of these shares shall remain subject to the final approval by the DoT.
The relevant date for valuation is August 14, 2021 and the par value of Vodafone Idea’s shares is Rs. 10. Since on the relevant date, the share price was below Rs. 10, the par value will be considered in calculating the number of shares that will be issued to the Government.
Potential After Effects of Conversion
The Telco also said that this conversion of dues into equity will result in dilution to the existing shareholders, including the promoters. This is because the total number of outstanding shares of the company will go up as new equity shares will be issued to the Government.
Such conversion will also have a direct impact on the earnings per share (EPS) calculation and diluted earnings per shares calculation.
Shareholding Pattern Post the Conversion
The shareholding pattern of Vodafone Idea will look like this after the dues are converted into equity to be held by the Government.
UK based Vodafone Group
K M Birla led Aditya Birla Group
Further Key Takeaways
The Department of Telecom had taken various steps to recover the dues and had provided relief packages. During the month of October 2021, in one such relief package, the DoT had proposed to Vodafone Idea a few options to clear the outstanding dues.
The Telco had chosen the option to defer the outstanding payment of all the dues by 4 years. However, as per the proposal, the dues were also subject to the charge of interest during the moratorium period.
Along with Vodafone Idea, the AGR dues case has also been pending between Government and other Telecom companies like Bharti Airtel and Reliance Jio. The DoT had given them all 90 days time to make the decision whether they want to convert this interest due during the moratorium period into equity.
Owing to that, the Telco Vodafone Idea has chosen to make the conversion. However, Bharti Airtel had denied opting for such a conversion. Vodafone Idea, on the other hand, is sunk in a pool of large debt, giving no room for the already-weakened telco to make another choice.
What is the AGR?
AGR stands for adjusted gross revenue. Telecom operators have to pay various fees and charges to the Union Government in the form of a revenue share. This revenue share is calculated as the amount for various expenses. The calculation of AGR also takes into account the company’s non-telecom sources of revenue, such as deposits and sales of assets. Although the AGR is supposed to include the non-telecom revenues, some companies prefer not to share it with the Union Government.
Will total interest be converted into equity?
No, only the interest related to the moratorium period offered by the government will be conferred into equity. As per the Vodafone Idea’s share of the amount due, the interest will give the Government a shareholding of about 35.8%.
What is the market capitalization of Vodafone Idea?
The market capitalization of Vodafone Idea is Rs. 37,356 Crores as of January 11, 2022 when the share of the company was trading at Rs. 13 per unit.
Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.
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