New Delhi: The Centre has reportedly discussed the option of converting a part of the interest dues of mobile companies into equity instruments as part of a larger solution to ease the financial stress of telcos. This proposal is likely to be taken up by the Union Cabinet very soon in view of Vodafone Idea’s stressed finances, the Times of India reported.
According to the publication, the proposal being discussed includes extending the moratorium on spectrum payments for companies by a few years, and thereafter convert the interest portion — to be charged to maintain the net present value (NPV) of the outstanding — into equity, while the companies are be mandated to pay back the principal in its entirety, sources said.
The proposal to extend the payment holiday for spectrum purchase, over and above the two-year holiday, which ends at the end of this fiscal, will be a relief for the sector, especially for Vodafone Idea, which is facing a severe cash crunch in view of the company’s debt that runs up to Rs 1.7 lakh crore.
According to the publication, a four-year break in spectrum payments is likely to increase the interest liability by around Rs 16,000 crore for Vodafone Idea, Rs 9,500 crore for Bharti Airtel, Rs 3,000 crore for Reliance Jio and Rs 1,500 crore for Tatas.
The government believes that survival of Vodafone Idea is important not only to maintain adequate competition in the telecom industry and avoid a duopoly (with Reliance Jio and Airtel as sole private operators), but also in view of saving its own interests as a large part of the company’s outstanding is towards the exchequer, which would become suspect in case it slips into bankruptcy.
However, to convert the interest into equity, Sebi’s preferential allotment guidelines will be followed as it is about listed companies such as Vodafone Idea and Bharti Airtel.
The sources said that detailed modalities of the equity conversion are “likely to be complex with several operational issues” that will be worked upon jointly by the finance ministry, department of telecom, Sebi, apart from other relevant participants, the daily mentioned.
The publication citing sources mentioned that the proposal also states that the government, at its sole discretion, may also decide to side-step the equity conversion route and would rather opt for redeemable preference shares (which may or may not be convertible), wholly or partially. In the past, the government has stayed away from such transactions and it remains to be seen if the proposal is finally taken up.