In a letter to the envoy, the UK India Business Council has said that conversion delay by the Department of Telecommunications – despite a written clearance of the finance ministry and PMO’s support – has hurt telco’s operations.
UKIBC Warns of Negative Implications
The cash-strapped telco has not been able to raise funds, the letter said.
The trade body further warned that if the issue wasn’t resolved soon as per the Cabinet decision, it would have more “negative implications” for the company and for the investment climate in India.
“Despite written approval from the ministry of finance and support from the PM’s Office, the DoT has held back converting interest to equity as per the Cabinet’s decision. Those in DoT that make decisions are verbally telling the company and its promoters that they want pre-conditions to the equity conversion, such as an additional equity commitment, which was never previously in the Cabinet decision,” said the letter, a copy of which has been seen by ET.
A senior government official, however, told ET on Tuesday that the unwillingness on the part of Vodafone Idea’s promoters – Vodafone Plc of UK and the Aditya Birla Group – to infuse adequate capital into the telco makes it unviable for the government to convert the interest into equity.
This stance has stymied the telco’s efforts to raise equity funding as the external investors want the government to first take stake. Banks have also pushed the telco’s promoters to put in more funds before lending to the debt-laden phone operator.
The high commissioner, in his letter seeking guidance from the finance ministry, has marked a copy to the DoT and the ministry of external affairs.
Members of the UK India Business Council include Diageo, HSBC, Standard Chartered, Vodafone Group, Barclays, GlaxoSmithKline, PwC, Rolls-Royce, State Bank of India, ICICI Bank, among others.
Queries sent to the UK India Business Council, the Indian High Commissioner, the finance ministry, the ministry of external affairs and DoT remained unanswered at the time of going to press.
Follow-up Meeting
The letter was written to the high commissioner as a follow-up to a meeting between the two sides on the challenges being faced by Vodafone Idea in implementing some clauses of the telecom reforms package announced by India in September 2021. As part of the reforms, the government made a provision that gives the operator the option to convert the interest into equity and there were “no strings attached” to that option, the trade body said. Vodafone Idea exercised the option of equity conversion in January 2022 and expected that the interest would be converted to government equity by April 2022 after DoT and finance ministry resolve some procedural matters.
The accrued interest on AGR-related dues stands at Rs 16,130 crore and if the conversion happens, the government may get a 33% stake, making it the single-largest shareholder in Vi, said analysts.
Strong Show
Since the announcement of reforms, the cash-strapped carrier’s performances have improved – it has seen four quarters of revenue growth and a rise in 4G subscriber numbers, among others.
“This positivity supported the company to make good progress in talks with banks and third-party equity investors,” the letter said. “The government reforms sent a very positive signal, both to existing and prospective investors, that India is open and welcoming to foreign investment. It was on this basis that promoters, led by Vodafone, brought in Rs 50 billion equity in March/April 2022.”
However, the case around equity conversion remains pending. “As a result of the delay in equity conversion, banks which were happy to support and investors ready to invest are extremely wary,” the trade body said.
DoT officials have previously pointed out that before the finalisation of the revival package, Vi’s promoters had assured the government they would invest around Rs 10,000 crore. The promoters since then have infused around Rs 4,900 crore, but most of it was used to clear dues of Indus Towers. “Practically none of this (Rs 4,900 crore) was used by Vodafone Idea,” said the government official.
Officials, in fact, say Vodafone Idea needs around Rs 40,000-45,000 crore for sustaining itself, and want promoters to bring in half of this with banks funding the rest. “In the absence of promoter funding, it will be difficult for the company to get external investors,” a senior official told ET in a report published on January 4. “Without promoter infusion, even banks are unlikely to support.”
