Indian telecom operator Vodafone Idea Ltd said on Tuesday its board has approved a plan to convert dues and spectrum auction instalments into equity to prevent the third-largest telecom operator in the country from collapsing.
Vodafone Idea’s shares were down 10% at 13.40 rupees and following the conversion into equity, the Indian government is expected to hold about 35.8% of the total outstanding shares of the firm. Promoter shareholders Vodafone Group will hold 28.5% and Aditya Birla Group 17.8%.
“Dilution in stake is something the promoters or existing shareholders do not welcome much. Somewhere around 10% to 15% of dilution to the government would have been welcomed,” said Likhita Chepa, senior research analyst at CapitalVia Global Research.
India‘s telecom sector was disrupted by the entry of billionaire Mukesh Ambani’s Reliance Jio and forced some rivals out of the market. The sector’s troubles have also been compounded by the huge dues owed to the government.
Vodafone Idea, a combination of the India unit of Britain’s Vodafone Group and Idea Cellular, has paid the government 78.54 billion rupees in dues, but still owes roughly 500 billion rupees.
India‘s top court in 2020 gave telecom firms 10 years until 2031 to clear dues, but rejected a plea last year seeking corrections to the calculation.
Larger rival Bharti Airtel said on Friday it will not convert interest and government dues into equity.
“From the sector perspective it is clear that the market will not shrink to two players … the government coming in doesn’t change anything in terms of a competitive landscape as they are not infusing any capital,” Ambit Capital analyst Vivekanand Subbaraman said.
• Reuters with additional editing by Jim Pollard