Vodafone Idea Shares Slump As It Agrees To Convert Interest On Pending Government Dues Into Equity
Shares of Vodafone Idea Ltd. fell the most in more than five months after it decided to convert interest on spectrum instalments and adjusted gross revenue dues into equity, giving the Indian government nearly 36% stake in the carrier.
The equity shares will be issued to the Government of India at par for Rs 10 per share, subject to final confirmation by the Department of Telecommunications, the operator said in a media statement.
“The conversion will result in dilution to all existing shareholders of the company, including the promoters,” the statement said. After the conversion, the government will hold around 35.8% of the total outstanding shares of the company, and the promoter shareholders would hold around 28.5% (Vodafone Group) and around 17.8% (Aditya Birla Group), respectively.
The carrier’s decision will make the government the largest shareholder in the company. Last year, India allowed to defer repayment of spectrum liabilities and statutory dues for four years to help struggling telecom operators. And the government offered a one-time opportunity to convert the net present value of the interest that will accrue on the deferred payments into equity.
In October, Vodafone Idea’s board decided to avail the option.
Vodafone Idea estimated the NPV of the interest to be about Rs 16,000 crore, subject to confirmation by the DoT.
The promoters—Vodafone Plc. and Birla Group—have mutually agreed to amend the existing shareholders agreement for reducing the minimum qualifying threshold for the purpose of conversion of interest to equity and also recommended changes in the articles of association.
“The governance and other rights of the promoter shareholders are governed by the SHA (shareholder agreement). The rights are subject to a minimum qualifying threshold of 21% for each promoter group, and in light of the conversion of interest into equity, the promoters have mutually agreed to amend the existing SHA for reducing the minimum qualifying threshold from 21% to 13%,” the statement said.
Last week, Bharti Airtel Ltd. had said it would not avail the option to convert the interest on the deferred spectrum and AGR dues into equity.
Shares of Vodafone Idea slumped as much as 18.86% but pared some of the losses to trade 12.79% lower as of 9:55 a.m. on Tuesday.
Of the 20 analysts tracking the company, six maintain a ‘hold’ and 14 recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies a downside of 31.2%. The stock’s trading volume was nearly five times the 30-day average volume at this time of the day.