Vodafone Idea makes Indian government top shareholder to pay off debt

Vodafone Idea Ltd.’s board has approved a rescue plan under which it plans to convert past exchequer dues into equity, giving an almost 36% stake to the Indian government and making it the largest shareholder in the country’s no. 3 wireless phone operator. This will result in dilution for all the existing shareholders of the company including the founders, the unprofitable wireless carrier said in a stock exchange filing Tuesday. Vodafone Group Plc will own around 28.5% and Aditya Birla Group will have about 17.8% in the company after the conversion, it said.

An Indian government representative did not offer any immediate comments on the proposed plan. Vodafone Idea’s shares slipped as much as 19% during trading in Mumbai, most in over five months. Benchmark S&P BSE Sensex was trading marginally higher on Tuesday.

The beleaguered wireless carrier, which owes 160 billion rupees ($2.2 billion) to the state exchequer for spectrum and other dues, hasn’t reported an annual profit since Reliance Jio Infocomm Ltd. sparked a brutal price war in 2016. While the move avoids bankruptcy for the joint venture between the Vodafone Group and billionaire Kumar Mangalam Birla’s conglomerate, it’ll be a stopgap measure for the company that’s been losing customers in droves. Investors will also be concerned about what the sudden change into state control means. 

“While this would stave off the immediate danger of bankruptcy, it does not augur well for any equity investor in a private company” in the company, said Utkarsh Sinha, managing director at consultancy Bexley Advisors in Mumbai. “Obvious concerns about its performance as a semi-state run unit aside, this sends a very negative signal to the business community.”

Amid industry strife, India last year gave operators more time to pay government dues and the option to convert the back fees into equity if needed -- an option that Vodafone Idea has now exercised after struggling to raise funds.

The carrier announced plans in September 2020 to raise as much as 250 billion rupees to help the company win airwaves in a planned spectrum auction as well as boost its telecom infrastructure, but hasn’t had much success so far.