Indian government gets majority stake in Vodafone Idea

Vodafone Idea announced Tuesday it would accept the Indian government’s proposal to convert its spectrum and adjusted gross revenue (AGR) dues to equity, making the government the company’s largest shareholder. 

Vodafone Idea, branded as VI, has outstanding payments for spectrum licenses and adjusted gross revenue. The operator values the net value of the interest on these dues at around $2.2 billion, although this could only be confirmed by the Department of Telecommunications (DoT).  

As such, the equity conversion will grant the Indian government a 35.8 percent stake in VI by reducing the interest of the operator’s shareholders, while Vodafone Group’s holding will be reduced from 45.1 percent to 28.5 percent, and Aditya Birla Group’s will drop from 26 percent to 17.8 percent.  

India’s telecoms sector has been struggling since 2016, after Ambani launched Jio and imposed high prices to gain market share, initiating a price war.  

VI’s fiscal second-quarter (Q2) results (September 30, 2021) confirmed falling subscriber numbers, ARPU, and revenue, although its net loss declined slightly from INR72.3 billion to INR71.4 billion.  

Meanwhile, the shares have been allocated to the government at ₹ ten because the average share price on the date (August 14, 2021) was below par value (₹10), the company noted in its filing.  

“The shares may be held through the statutory undertaking of the Unit Trust of India (SUUTI) on behalf of the Government of India or by any trustee-type or other suitable arrangement,” the company said in its statement to the exchanges. 

SUUTI is a government investment wing that holds substantial stakes in publicly listed companies like HDFC Bank, ICICI Bank, State Bank of India, among others. 

The Department of Telecommunications had in October 2021 presented Vodafone Idea and Airtel with various options to obtain from the telecom relief package announced in September.  

The rescue will also prevent India’s telecoms sector from becoming an effective duopoly while protecting banks from a surge in bad loans if the company folds.   

However, it is unlikely to change Vodafone Idea’s gloomy business prospects because the unprofitable company has lost almost 10 percent of its subscriber base over the past year, bringing it to 269 million in October, the most recent month for which data is available.