As per a report by Deutsche Bank Research, the government should convert Vodafone Idea Limited’s (Vi) debt to equity to avoid a duopoly in the telecom sector.
In light of the Supreme Court’s rejection of the telecom company’s request for a recalculation of adjusted gross revenue (AGR) dues, the bank indicated that this would be the only realistic alternative.
As of March 31, Vi owed Rs 1.8 trillion, which included Rs 962.7 billion in postponed spectrum commitments, Rs 609.6 billion in AGR liabilities and Rs 230.8 billion in bank debt.
According to the report, the vast majority of Vi’s debt is spectrum and AGR obligations and the company will need to take on 5G spectrum at some point too. In this scenario, private investors are extremely unlikely to save the company, given successive governments seeing telecom capital as something to target. Thus, the report stated that the only viable solution for India to keep Vi is for the government to convert its debt into equity, preferably while merging it with Bharat Sanchar Nigam Limited (BSNL) and then providing it a clear commercial mandate based on profitability targets and incentives.
Vi’s existing owners would be substantially diluted because the government debt is about six times the company’s present market capitalisation, but such a solution may be acceptable to shareholders, Deutsche Bank stated.
