Would the Conversion of AGR into Equity be Enough for Revival of Vodafone Idea

Finally the board of Vodafone Idea (VI) has approved the bailout package rolled out by the Department of Telecom (DoT) to rescue firms from the burden of Adjusted Gross Revenue (AGR) dues. This will make the Government of India the largest shareholder in the company. The DoT rolled out this bailout package to provide breathers to the telecom operators from the burden of AGR dues. However, the most important question still remains unanswered. Would this conversion of AGR into equity be enough for the revival of Vodafone Idea?

To answer this particular question, the gravity of the problem faced by Vodafone Idea has to be assessed. A look at the balance sheet of Vodafone Idea clearly indicates that the problems of Vodafone Idea are far deeper than just the issue of AGR. On 31st March 2021, Vodafone Idea had external liabilities of more than ₹ 2 lakh crores along with falling market share. So even if the company does not have to pay AGR dues to DoT and the government has become the largest shareholder of the company, things are not going to be easy for the company. Also the company would require around ₹20,000-25,000 crores for the technological migration from 4G to 5G which will be rolled out in India in 2022 by other telecom operators. This will put more strain on the company.

So even after the resolve shown by the government and other promoters to revive the company, it is going to be a tough task for Vodafone Idea as without infusing additional equity, market confidence in the company cannot be restored and this is going to be very tough for the government which is in the spree of privatization! The fate of the company now depends on the ability of the company in attracting new equity.

Rajeev K. Upadhyay