Telecom relief package: Vodafone Idea, others may be allowed to convert interest into govt equity

While both Bharti Airtel and Vodafone Idea owe large sums to the government, the move brings relief to the latter whose quantum of dues is much larger. Vodafone Idea, which is owned by UK’s Vodafone Group and the Aditya Birla Group, has a total outstanding debt to the government of nearly Rs 1.6 lakh crore. The company owes the Department of Telecommunications around Rs 96,500 crore in deferred spectrum payments and another Rs 62,000 crore as AGR dues.

The company could avail the four-year moratorium, but it would still have to pay the accrued interest over the outstanding debt at the end of the period.

Also read: Will Centre’s relief package help battered telecom industry? 

"A four-year moratorium (on AGR and spectrum payments) has been given to telcos. They can pay their dues to the government at the end of the four years but whosoever avails this opportunity will have to pay an interest at MCLR plus 2 percent," Vaishnaw said on September 15.

Government officials estimate that Vodafone Idea will owe Rs 15,000 crore in interest alone if it chooses to avail the moratorium, reported The Economic Times.

With the company’s average revenue per unit (ARPU) being significantly lower than its competition, and its balance sheet in red, it is unlikely to make its full payment to the government in the stipulated time. In such a case, the government may choose to turn its outstanding debt into equity owned by the government, said Vaishnaw.

While the exact mechanism of the debt to equity conversion hasn’t been stated yet, ideas about converting the interest owed to equity or turning the whole amount owed at the end of the moratorium into equity have been floated.

Also read: Telecom relief package paves way for Vodafone Idea to become a PSU: IIFL

The details of the procedure are yet to be decided by the Department of Telecom (DoT) and the Finance Ministry, according to a report in Economic Times.