SEBI approves government proposal to convert Vodafone Idea debt to equity

Vodafone Idea has been waiting for the government to convert debt to equity. According to Reuters, market regulator SEBI has approved the government's proposal to convert its pending deals into equity.

This is significant since the SEBI approval was needed because the government had to convert its stake for Rs 11.80, while the Vodafone Idea stock price was below the face value of Rs 10.

As a result, the SEBI rules did not permit it, which is why the government sought clearance from the regulator. Now that it has happened, it clears the way for the government to convert.

What does this equity conversion pertain to?

The conversion of interest on AGR dues which stand at Rs 16,130, which means that once the government converts the interest on AGR dues into equity, the debt on Vodafone Ideas books comes down by Rs 16,000 crore, and the government will be holding close to about a 33 percent equity stake.

This paves the way for the government to go ahead and convert its stake.

Only once the government converts its stake into equity will external funding be possible for Vodafone Idea. Vodafone Idea is seeking to raise about Rs 10,000 crore of equity funds and Rs 10,000 crore of debt from banks to fund its 5G plans, but this has been on hold because of a lack of clarity on if and when the government will convert that equity.

There is a board meeting that Vodafone Idea has scheduled tomorrow where they will consider the issuance of convertible debentures to a vendor.

The significant news from hereon will be if the government now converts its stake into equity, the timeline, and will external funds and investors be committing money to Vodafone Idea.