Indus Tower expects Vi to pay dues according to the payment schedule approved by its board

31 Oct 2022 , 09:35 AM

According to Indus Towers, the Department of Telecommunications (DoT) cannot convert the accrued interest on the deferred AGR-related debt owed by Vodafone Idea into equity unless the loss-making telco’s stock price stabilizes above Rs10 in accordance with company law regulations.

“In September 2022, the finance ministry approved a plan to convert Vi’s accrued interest on deferred AGR-related debt into equity in the amount of Rs16,130 crore. At this point, the DoT must complete the deal. The equity conversion would only be resolved once the stock price stabilized above Rs10 because, according to company law regulations, any equity injection cannot be below par value (Rs10),” Indus stated in its quarterly report for the July-September period.

The cash-strapped telco needs to complete its much-delayed Rs20,000 crore fundraising via a mix of debt and equity, so the equity conversion is essential. This will give the government a 33% stake and make it the largest single shareholder in Vi.

This is especially true given that potential investors want clarity on this matter. Vi urgently needs money to pay its enormous vendor debt, which includes almost Rs7,000 crore to Indus Towers alone.

In actuality, the equity conversion has been on hold since January of this year. This is because the price of the Vi stock has been circling below Rs10.

On January 11, Vi originally decided to convert the accumulated interest into equity. On the BSE, its shares finished at Rs11.80. However, despite rising 3.4% between September 2 and 5, shortly after the telco prepaid a nearly Rs2,700 crore short-term loan to the State Bank of India (SBI), the stock price has remained below Rs10 for most of the current financial year. Vi’s shares on the BSE ended the day on Friday about 1% lower at Rs8.54.

Prior to finalizing the conversion, the government has requested that Vi submit a detailed plan for obtaining funds. The DoT has adopted a cautious stance since it believes that Vi would suffer significant difficulties in competing with its financially stronger rivals Reliance Jio and Bharti Airtel if it relied solely on government funding and did not receive significant outside funding.

Loss-making Vi needs money in order to invest in 4G capex as well as to secure vendor contracts for its upcoming 5G deployment, for which it is under growing pressure to pay off debt. It requires cash to pay off significant suppliers, including Indus, ATC, Nokia, and Ericsson, as well as to invest in network expenditure to stop significant client losses to rivals Jio and Airtel.

For its part, Indus Towers has stated that it will not take into consideration the scenario in which Vi is using convertible debentures to pay competitor cell phone tower business American Tower Corp (ATC)’s. Instead, it anticipates that Vi will pay its debts in accordance with the payment schedule that the Indus board recently agreed.

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