Telecom relief package: Dilution to be less for telcos with firm share price, says CARE Ratings

The telecom department, in consultation with the Finance Ministry, has written to telecom companies, sharing the contours of the equity conversion formula. The letter from the Department of Telecom (DoT) says the scheme is optional for telcos; they may or may not choose to participate in it. The letter gives a 10-day deadline to the telcos to reply on whether they will be opting for the AGR (spectrum) dues moratorium and whether they will be opting for the equity conversion scheme.

Last month, the Cabinet had said that there will be a four-year moratorium for AGR as well as spectrum dues, and the interest for these dues can be converted to a loan. This loan then can be converted to equity, and the telcos will be bound to issue equity shares on preferential basis. Sachin Gupta, Chief Rating Officer at CARE Ratings, shared his perspective.

“The key thing to note here is that the companies have also given some kind of a formula for determining the value of this equity conversion. The formula they are talking about is the prevailing share price prior to the scheme being launched. So, September 15 is when it was launched and the dilution will happen at a price which is prior to that. It gives clarity to the telecom players as they will know what kind of interest amount is due and they will be able to do the calculation as to how much dilution it will lead to. That will allow them to take the fair cost,” he said.