Voda Idea to seek to convert dues into equity after moratorium ends: JP Morgan

Vodafone Idea will urge the government to convert into equity the annual installment for spectrum payments for FY26/FY27 that will fall due after the moratorium ends by September 2026, chief financial officer Murthy GVAS told analysts at JP Morgan, after the debt-laden telecom firm raised ₹18,000 crore in a follow-on public offer in April.

In a note to clients, JP Morgan said that the company expects to have adequate cash to repay annual government dues starting FY28.

“Vodafone Idea believes that post moratorium-end next year and spectrum payments restarting, it will need government support in FY26/27 and after that it believes its cash generation should be sufficient to repay annual government dues,” analysts at the brokerage said in the note seen by Mint.

The Aditya Birla Group-promoted telecom services provider owes the government $24.5 billion or more than ₹2 trillion for spectrum bought in prior auctions as well as dues from adjusted gross revenues or AGR, that it needs to start repaying. In FY26, it must pay $3.5 billion, then $4 billion each year from FY27 to FY31.

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“Given its cash crunch, it is in favour of converting the deferred amount ($3.5 billion) of this debt into equity from FY26, which we assume happens at ₹10 per share, driving dilution,” the analysts added. Despite this payment, it would still be saddled with a $21 billion debt.

Vodafone Idea chief executive Akshaya Moondra had told Mint in an interview ahead of the FPO that it may seek government support based on its ability to pay the dues when the moratorium ends. “This will not be every year but in the initial couple of years the possibility could be high,” Moondra had said.

The country's third-largest telecom operator by subscribers had opted for a four-year moratorium on payments for 5G spectrum bought in the last auctions in 2022, which was offered by the government as part of a reforms package to improve the financial health of the telecom sector. The reforms also provided the option for telcos to covert the interest on dues and the principal amount of the dues into equity which can be held by the government.

“Government conversion is an option that could come from the promoter if they believe that is the right thing to do. Also, there is a possibility that the government may not want to increase equity and defer it,” Moondra had said.

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With a 24.27% stake, the government is currently the single largest shareholder of Vodafone Idea. This can rise to 35% if it decides to convert its dues (the deferred amount of $3.5 billion) to equity, Moondra had added. The holding could decline to 23.2%, following a preferential issuance to equipment vendors Nokia and Ericsson that is set to be approved next month. The vendors will hold 1.5% and 0.9%, respectively, in lieu of some of the dues that the carrier owes to the European firms. It is also in discussions to pay Indus Towers dues amounting to ₹10,000 crore.

The carrier that raised ₹18,000 crore from the country’s largest FPO in April is currently in talks with banks to get ₹35,000 crore in loans, which it plans to spend on launching 5G services and expanding and deepening the availability of its 4G services. The capex push of ₹50,000 crore to ₹55,000 crore planned for the next three years is aimed at becoming competitive to rivals Bharti Airtel and Reliance Jio.