Vodafone Idea limited proposed DoT (Department of Telecommunication) that they are opting to covert the interest on AGR ( Adjusted Gross Revenue) and spectrum dues into govt. equity.
What is the story behind the AGR and Spectrum dues?
Before getting into the conversion of debt to equity story, first, we need to understand the revenue sharing system between government and telecom companies.
See the telecom sector was liberalized under the National Telecom Policy, 1994 after which licenses were issued to companies in return for a fixed license fee. To provide relief from the steep fixed license fee, the government in 1999 gave an option to the licensees to migrate to the revenue sharing fee model.
Under this, mobile telephone operators were required to share a percentage of their Adjusted Gross Revenue (AGR) with the government as annual license fee (LF) and spectrum usage charges (SUC). License agreements between the Department of Telecommunications (DoT) and the telecom companies define the gross revenues of the latter. AGR is then computed after allowing for certain deductions in these license agreements. The LF and SUC were set at 8 percent and between 3-5 per cent of AGR respectively, based on the agreement.
The dispute between DoT and the mobile operators was mainly on the definition of AGR. The DoT argued that AGR includes all revenues (before discounts) from both telecom and non-telecom services. The companies claimed that AGR should comprise just the revenue accrued from core services and not dividend, interest income or profit on sale of any investment or fixed assets.
Many hearings happened in past but in 2019 Apex court favoured the definition of DoT and ordered payment of statutory dues on the basis of the old definition of AGR. The telecom firms -- Bharti Airtel, Vodafone Idea and Reliance Communications -- owed nearly Rs 92,000 crore to the Centre as license fee and Rs 41,000 crore as spectrum usage fees..
AGR refers to revenues that are considered for payment of statutory dues that means company have to pay it but after the entry of a new competitor which is Jio in this sector other companies went into huge losses and lost the majority of their customer and companies turned into stressed one.
On 15 Sept 2021 Union Cabinet approved a big-bang relief package for the stressed telecom sector that includes a four-year break for companies from paying statutory dues, permission to share scarce airwaves, change in the definition of revenue on which levies are paid, and 100 percent foreign investment through the automatic route aimed at maintaining healthy competition in this sector.
So under this relief package, VI decided to offer equity stake against their dues related to spectrum auction installments and AGR payments considering NPV of ₹40000 crore at ₹16000 crore.
Equity will be issued at par of ₹10 per share likely.
New shareholding pattern will be Govt. 35.8% , Vodafone Group 28.5% (From 44.4%) and Aditya Birla Group stake will drop to 17.8% from 27.7%. But Vi’s total spectrum-plus-AGR liability of ₹1.7 lakh crores remains unchanged and annual payment will increase from ₹24000 crore to ₹40000 crore once the moratorium period ends.
Key points to note from the relief package:
Telecom Cos opting to convert dues to equity won’t become PSUs, they will remain professionally run.
Conversion of dues into equity to help Cos invest in services.
Govt can sell equity at appropriate time,
The shares may be held through the Statutory Undertaking of the Unit Trust of India (SUUTI).
Happy Reading....!!!
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