If the plan goes through, the government will become the biggest shareholder in the company, which is reeling under a debt burden of about Rs 1.95 lakh crore.
Debt-ridden Vodafone Idea (VIL) has decided to opt for converting about Rs 16,000 crore interest dues liability payable to the government into equity, which will amount to around 35.8 percent stake in the company, as per a regulatory filing of the telecom firm.
As of September end, Vi had a gross debt of Rs 1.94 trillion comprising deferred spectrum obligation of Rs 1.08 trillion, AGR liability of Rs 63,400 crore and bank debt of Rs 22,770 crore.
The loss-making company has proposed to allocate preferential shares to the government at price of Rs 10 per share, which is at 58 percent premium based on the share price at the relevant date of August 14, 2021.
Shares of the company closed at Rs 11.80 on Tuesday, down 20.54 percent.
What does this mean?
If the plan goes through, the government will become the biggest shareholder in the company which is reeling under a debt burden of about Rs 1.95 lakh crore.
The government had given telecom operators an option of paying interest for the 4 years of deferment on the deferred spectrum installments and AGR dues by way of conversion into equity of the NPV of such interest amount.
The company’s total gross debt, excluding lease liabilities and including interest accrued but not due, as of 30 September, 2021 stood at Rs 1,94,780 crore.
The amount comprises deferred spectrum payment obligations of Rs 1,08,610 crore, AGR liability of Rs 63,400 crore that is due to the government and debt from banks and financial institutions of Rs 22,770 crore.
From Hutch to Vodafone and now Vi — the journey
Hutchison Max Telecom Ltd. (HMTL), a joint venture between Hutchison Whampoa and the Max Group was established on 21 February 1992. The globally popular brand came to India in November 1994 when they got the licence to operate in Mumbai circle by the department of Telecommunication. Gradually, their market vision expanded and they started entering into more regions.
The brand was then renamed Hutchison Essar limited in August 2005. After acquiring about six mobile telecommunication operators, it targeted business users and high-end post-paid customers which helped Hutchison Essar to consistently generate a higher Average Revenue per User than its competitors.
Hutchison Essar Limited, a Hong Kong-based company was renamed Vodafone in July 2007 as Vodafone acquired 67 percent in Hutchison Essar from Hong Kong-based Hutchison Whampoa.
In July 2011, Vodafone Group bought the mobile phone business of its partner Essar for $5.46 billion. This meant Vodafone owns 74 percent of Essar. On 11 February 2007, Vodafone agreed to acquire the controlling interest of 67 percent held by Li Ka Shing Holdings in Hutch-Essar for $11.1 billion, pipping Reliance Communications, Hinduja Group, and Essar Group, which is the owner of the remaining 33 percent.
However, Vodafone was embroiled in a $2.5 billion tax dispute with the Indian Income Tax Department over its purchase of Hutchison Essar Telecom services in April 2007. It was being alleged by the Indian Tax authorities that the transaction involved the purchase of assets of an Indian Company, and therefore the transaction or part thereof was liable to be taxed in India.
In January 2012, the Indian Supreme Court passed the judgement in favour of Vodafone, saying that the Indian Income-tax department had “no jurisdiction” to levy tax on overseas transactions between companies incorporated outside India. However, Centre thought otherwise.
Therefore, in 2012, the government changed its Income Tax Act retroactively and made sure that any company, in similar circumstances, is not able to avoid tax by operating out of tax-havens like the Cayman Islands or Lichtenstein. In May 2012, Indian authorities confirmed that they were going to charge Vodafone about Rs 20,000 crore ($3.3 billion) in tax and fines.
The entry of Jio in 2016 had led to various mergers and consolidations in the Indian telecom sector.
Keeping that in mind, it was announced in March 2017 that even Idea Cellular and Vodafone India would be merged. The merger got approval from the Department Of Telecommunications in July 2018.
In 2018, National Company Law Tribunal gave the final nod to the Vodafone-Idea merger and completed it on 31 August 2018, and the newly merged entity was named Vodafone Idea Limited.
The merger created the largest telecom company in India by subscribers and by revenue. Under the terms of the deal, the Vodafone Group holds a 45.2 percent stake in the combined entity, the Aditya Birla Group holds 26 percent and the remaining shares will be held by the public
The rebranding of Vodafone Idea – Vi – using just the initial of the two firms came two years after the merger of the telecommunications companies on 7 September 2020. According to the company, it represents the spirit of integration.
With inputs from PTI