Converting Vodafone Idea's debt to equity is an option to save telco, bankers tell DoT

The lenders to Vodafone Idea Ltd have told the Department of Telecommunications (DoT) that converting the debt of cash-strapped telco to equity is one of the options to save the company.
 
The officials of DoT held a meeting with banks on Friday to address financial stress in the telecom sector, particularly Vodafone Idea that urgently requires fund infusion to stay afloat.
 
"DoT asked banks about their plans regarding Vodafone Idea...they said converting debt to equity is an option, but no major default has happened," the Economic Times reported an official as saying.
 
The company owes over Rs 1.5 lakh crore to the government, including that for spectrum payment and adjusted gross revenue (AGR) liability, as against a liability of Rs 35,000 crore to banks.
 
The lenders led by State Bank of India said in the meeting that they couldn't take any action as Vodafone Idea has not defaulted, and asked DoT to take steps to save the company as the government stands to lose more if the telco collapses, the publication said.

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A large part of the loans to the company is in the form of guarantees, with public sector banks having a lion's share of the debt. Among the private sector lenders, Yes Bank and IDFC First Bank may be impacted the most. As a precursor, some private lenders with a funded exposure have already started making provisions.
 
In the backdrop of the large liabilities, both promoters -- Vodafone Plc (45 per cent stake) and Aditya Birla Group (27 per cent stake) have expressed their inability to bring in additional capital.
 
Writing a letter to Cabinet Secretary Rajiv Gauba in June, Aditya Birla Group Chairman Kumar Mangalam Birla said investors are not willing to invest in the company in the absence of clarity on AGR liability, adequate moratorium on spectrum payments and most importantly floor pricing regime being above the cost of service.
 
Birla also resigned from the post of non-executive chairman of the floundering telecom giant last week.

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