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DNA Explainer: What is Vodafone Idea equity conversion? How Centre become largest shareholder in Vi

The Centre became the biggest shareholder in telecommunication company Vodafone Idea, after converting its interest dues into equity.

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Vodafone Idea, which is one of the leading telecommunication companies and network providers in India, found itself in a bind due to a large sum of interest debt. Coming to the rescue, the Centre decided to clear all the interest dues of the company.

The Bhartiya Janta Party (BJP)-led central government helped Vodafone Idea out of the debt ditch after clearing its interest due worth Rs 16,000 crore, converting the money into equity. Now, the Centre has become the biggest shareholder in Vodafone Idea.

Vodafone Idea or Vi had been looking forward to the clearing of interest dues since September 2021, when the Centre announced a relief package for telecom companies, which allowed them to convert interest on deferred adjusted gross revenue owed to the government into equity.

Almost two years after the relief package announcement, the Centre gave the green light for converting Vi interest dues into equity after getting due assurance from the promoters of Vodafone Idea that they would infuse additional capital into the company.

Announcing the same, Union Communication Minister Ashwini Vaishnaw said, “We had sought a firm commitment that the Aditya Birla Group would run the company and bring necessary investments. Birlas have agreed and hence we have agreed to convert. We want India to be a three-player market plus BSNL and ensure healthy competition for consumers.”

What is Vodafone Idea equity conversion?

In the matter of the Vodafone Idea equity conversion, Finance Minister Nirmala Sitharaman has made clear that the Centre is not bearing the debt of the company by clearing the dues, but has taken equity in the telecom company by the process.

The FM further said, “We are not bearing their (Vodafone-Idea) debts. The company is not in the position of giving the due to the government. That's why we are taking the company's shares. This means we are shareholders in the company. When the company will gain profit, we will also get the profit."

Talking about the process of equity conversion, the Centre made clear that this is not just a one-off deal, but has been extended to other companies as well. The scheme came into effect in September 2021, and a relief package was announced for all telecom companies.

According to the options extended to companies like Vodafone Idea, they could either take the moratorium and pay the interest, or they can take the moratorium and convert the interest into equity, which will be owned by the Centre.

After the equity conversion in Vodafone Idea, the central government will hold around 33 per cent equity in the company, making it the biggest shareholder of the telecom company.

READ | Government agrees to convert Vodafone Idea's interest debt into equity worth over Rs 16,000 crore

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