SEBI allows converting Vodafone Idea's dues into equity
What's the story
Struggling telecom player Vodafone Idea has been thrown a lifeline. The Security and Exchange Board of India (SEBI) has approved the central government's proposal to convert the company's dues worth $1.92 billion to equity, two officials told Reuters.
The market regulator has reportedly approved the government's request to classify its shares as public float.
Vodafone Idea, SEBI, or the government hasn't made any comments.
Context
Why does this story matter?
It seems that we are finally approaching the end of the Vodafone Idea debt saga. With the market regulator's approval, the plan to get the struggling telco back on track can be put in motion finally.
The downside of the interest conversion plan is that government will be a major shareholder along with the promoters. The question is, will it affect the company's operations?
Lifeline
Interest on spectrum, AGR payments can be converted into equity
In 2021, the Indian government gave cash-strapped telcos an option to pay interest for four years on deferred spectrum installments and AGR (adjusted gross revenue). They also have the option to convert this interest into equity.
This was a huge relief to debt-laden companies such as Vodafone Idea and Bharti Airtel.
Vodafone Idea had opted to do so.
Conversion
Government's stake could be above 30%
Vodafone Idea was on the verge of bankruptcy, and converting what it owed to the government into equity seemed like the most reasonable option.
An official who desired to remain anonymous told Reuters, "SEBI has approved the government's proposal to come in as a financial investor. This has been communicated to the telecom ministry."
After conversion, the government's stake could be above 30%.
What's next
Government will the sell the equity back
SEBI has also allowed another exemption to the government. The government will be allowed to classify its shareholding in Vodafone Idea as public float. Usually, only up to 10% of shares can be classified as public.
Once Vodafone Idea is out of the debt it is in, the government will sell this equity back, said the officials.