Govt Refuses To Operate Vodafone, Or Merge With BSNL, Or Make It A PSU; Can Exit Later After This Happens

The government has asserted that it will play no role in the management of Vodafone Idea’s operations despite holding a 35.8% stake.

What Role Will It Play?

It is not looking to convert the loss-making telco into a state-run company.

It does not want a board seat either, since it will likely pull out once the struggling telco achieves stability.

Its chief aim with the telecom reform package was to “help bring about liquidity and de-stress the telecom companies”, said a senior government official.

That’s where its involvement ends, since it has no intention to “take any voting rights, make it a PSU, or take a seat on the board of directors”.

Why The Govt Was Offered Equity

The official shared that the department of telecommunications (DoT) will initiate talks with the finance ministry.

They will discuss the procedure to convert the offered stake into government equity. 

The decision to give the government equity was made since it would not participate in decision making and sovereign backing.

Boosting Investor Appeal

This would serve to boost investors’ confidence to invest in the company.

It will offload its stake “as soon as the company’s operations stabilize”, explained the official.

Vodafone Idea has been conducting talks with a few investors to raise money, and company MD Ravinder Takkar spoke about its plans to complete its capital raise by March 2022.

Other Shareholders

After opting to convert interest on adjusted gross revenue (AGR) and spectrum dues into government equity of around 35.8%, Vodafone Group Plc’s holding would fall from 44.39% to 28.5%.

Meanwhile, Aditya Birla Group’s holding will fall from 27.66% to 17.8%, demoting them to second and third-largest shareholders in the telecom operator.

The company’s total gross debt stood at about Rs 1.9 lakh crore at the end of the quarter ending September.

What It Means For Airtel, Jio

Analysts say that rivals Bharti and Jio will have to tread carefully in terms of pricing lest they trigger a pricing war which would undermine Vi.

They should instead compete on “quality of service than price…,” advises an internal note from equity research firm Deutsche Bank Research.