Belying telco hopes, the Supreme Court has dismissed petitions by Vodafone Idea Limited (Vi) and Bharti Airtel, seeking waivers on adjusted gross revenue (AGR) dues relating to interest, penalty and interest on penalty. The court termed the pleas as “misconceived” and noted that statutory payments are binding and non-negotiable. While the Supreme Court has ruled out judicial relief, the government still retains the legal authority to extend policy-based support to the telcos.
Bharti Airtel had requested the Department of Telecommunications (DoT) to convert its outstanding AGR dues, amounting to around Rs 410 billion, into equity.
This request built on the precedent set by the government’s decision to allow Vi to convert similar dues into equity.
While the legal situation is similar, the circumstances are very different. Vi was cash-strapped and bleeding, and did not have the resources to pay its dues. If the government had not agreed to the conversion, Vi would likely have gone out of business and the money would never have been recovered.
Airtel is a profitable business with the capacity to clear its AGR dues without any stress. But the Vi’s conversion has set a legal precedent and, in those terms, it seems to be an open and shut case. If there is a level playing field, Airtel too should be allowed to convert its dues.
In strictly commercial terms, the conversion, assuming the government agrees, would give the government 2-4 per cent equity stake in Airtel at a price close to current market value. For Airtel, it would free up Rs 410 billion to deploy expeditiously.
Airtel could use that money to strengthen operations in India or Africa. It could increase its stake in Airtel Africa, which is growing much faster than its Indian counterpart. It could retire other debt to reduce interest payouts and deleverage. It could increase its stake in Bharti Airtel with a buyback offer.
For the government, it could be seen as an investment decision. Given Airtel’s track record, there is an excellent probability that the shares would appreciate significantly over the long term. Airtel could fuel faster growth, or shore up its balance sheet by using that Rs 410 billion optimally. There might be good returns from conversion and, moreover, it is a dividend-paying stock.
Commercially, therefore, it is a win-win proposition on the face of it. There are some points to ponder, however.
One is the possibility of a creeping return of big government to the telecom sector. It is already the biggest shareholder in Vi – and, of course, there is the BSNL-MTNL exposure.
In a competitive sector, the government holding direct stakes in competing operational entities is a matter for concern. The temptation to tilt the playing field in favour of a particular entity by tweaking policy will always be there, and this could impact market dynamics. That would not be healthy.
Existing investors in Airtel may also wonder if the exploration of conversion processes is a red flag. Further, an equity dilution generally reduces returns on a per-share basis, although this depends on the structure of any such deal.
However, there is no sign that Airtel is facing business stress. Indeed, it has reported excellent results for fiscal year 2025. Besides, it may actually decide to not go ahead with the conversion after exploring all options.
It may, after all, turn out to be a “thought experiment”.
