Industry Seeks Safeguards as Government Opens Equity Conversion to All Licensees

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Industry Seeks Safeguards as Government Opens Equity Conversion to All Licensees: Report
The government’s decision to allow the conversion of statutory dues into equity for all telecom licensees, including spectrum and adjusted gross revenue (AGR) dues, has triggered calls from industry executives and experts for safeguards to prevent widespread misuse of the policy, according to an ETTelecom report.

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Also Read: Bharti Airtel’s AGR Dues to Be Scrutinised by DoT for Equity Conversion: Report

Centre’s Move Triggers Industry-Wide Reactions

Following the Centre’s move to convert Vodafone Idea’s Rs 36,950 crore spectrum dues into equity, Bharti Airtel has also sought to convert its entire AGR dues — amounting to over Rs 41,000 crore — into government equity. Airtel’s demand, unexpected given its relatively strong financial health compared to Vodafone Idea’s precarious position, has raised concerns that other players could seek similar relief, according to the report.

“And if agreed to, this could lead to the government holding stakes in several private companies, which won’t be an ideal situation,” an unnamed industry expert was quoted as saying.

But the demand from Airtel, experts say, can lead to others also seeking the same treatment. For example, Reliance Jio too can seek to convert its spectrum dues into equity as the company doesn’t have legacy AGR dues and was not affected by the Supreme Court judgement of 2019, pointed out an industry expert, as per the report.

Also Read: Bharti Airtel Writes to DoT for Equity Conversion of Statutory Dues: Report

Concerns Over Government Stakes in Private Firms

“Apart from the telecom firms, there are various ISPs and VSAT players that are saddled with thousands of crores of AGR dues. In case, the government does not provide relief or waiver for such firms, they too can seek equity conversion to clear the dues,” the expert added, as per the report.

“The equity conversion for Vodafone Idea was done as the company was struggling financially…if the conversion had not happened, the firm might have gone bust. But the situation for Airtel is different and there should be some checks and balances for applying the equity conversion policy for its AGR dues,” Rohan Dhamija, head, India and the Middle East, Analysys Mason, was quoted as saying.

While Airtel said it was entitled to offer equity against dues beyond the ongoing moratorium period — including payments for spectrum acquired during the 2022 5G auctions — the Department of Telecommunications (DoT) has yet to clarify whether post-2021 liabilities are eligible under the scheme.

According to the report, DoT officials have declined to clarify whether dues incurred beyond the 2021 telecom reforms can also be converted into equity. But industry executives said the policy of conversion applies to all dues, including those after 2021. “As per the policy, all companies can offer equity to the government in lieu of their spectrum and AGR dues,” an executive said.

Communications Minister Jyotiraditya Scindia recently affirmed that the rules around equity conversion apply uniformly to all licensees, with the department reviewing individual requests.

Also Read: Government Stake in Vodafone Idea Rises to 48.99 Percent After Fresh Equity Allotment

Policy Implications on Business Environment

The move to allow equity conversion gained momentum after the government decided to put on hold a proposal to waive penalties and interest on AGR dues — a waiver that would have otherwise written off over Rs 1 lakh crore for telcos and Rs 82,000 crore for non-telcos.

“In general, for telecom and other sectors, the government has to frame the policy on equity conversion by private players in lieu of statutory dues with proper safeguards as otherwise it could disrupt the business environment and government finances,” Dhamija reportedly added.

Industry stakeholders now await clarity from the DoT on the detailed contours of the equity conversion policy, amid growing apprehension about its far-reaching implications.

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