The Indian government has converted ₹36,950 crore of Vodafone Idea’s spectrum dues into equity, significantly increasing its stake in the struggling telecom company. With this move, the government’s holding in Vodafone Idea has jumped from 22.60% to 48.99%, making it the largest shareholder.

Why Did the Government Convert Spectrum Dues Into Equity?

The conversion is part of the 2021 Support Package, which allowed telecom operators to defer their spectrum payments and later convert them into equity at the end of the moratorium period. Vodafone Idea opted for this relief measure to ease its financial burden and reduce immediate cash outflows.

This is the second time the government has converted Vodafone Idea's dues into equity. In 2023, it had already converted ₹16,133 crore of debt at ₹10 per share. However, the company’s stock price has struggled, leading to a 32% decline in the government’s investment value.

Why Was the Debt Converted at ₹10 Per Share?

A crucial aspect of this transaction is the issue price of ₹10 per share, which is higher than Vodafone Idea’s March 28 closing price of ₹6.80. The reason for this is Section 53(2) of the Companies Act, which prohibits issuing shares at a discount. This legal requirement meant that the conversion had to happen at the par value of ₹10 per share.

Does This Make Vodafone Idea a PSU?

While the government now owns 48.99% of Vodafone Idea, it has stopped short of crossing the 50% threshold, which would have classified Vodafone Idea as a Public Sector Undertaking (PSU).

Legally, there is no restriction on further converting more dues into equity, but doing so would place Vodafone Idea under PSU regulations, which the government may want to avoid.

What’s Next for Vodafone Idea?

Although this conversion eases Vodafone Idea’s spectrum payment obligations for FY26, the company still faces significant debt challenges. It continues to struggle with high liabilities, a weak balance sheet, and intense competition from Reliance Jio and Bharti Airtel.

With this conversion, Vodafone Idea must now focus on:

• Raising fresh funds to expand its 5G rollout and improve network quality.

• Boosting revenue growth to compete effectively in the Indian telecom market.

• Attracting investors as the company continues its financial restructuring.

As Vodafone Idea navigates its financial future, the telecom sector remains on high alert for any further government intervention or private investment.

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