The debt-laden Vodafone Idea (Vi) can potentially reduce its debt if it agrees to convert it into equity. The telco doesn’t have the cash flow to pay off its debt in a comfortable manner and keep expanding its network at the same time. The telco’s promoters have also expressed their unwillingness to infuse any further capital into the company. There’s not a lot Vi can do at the moment since it is cash flow negative, losing subscribers, has no government support, and the promoters don’t back the company like they used to.
Lenders Suggest Debt Can be Reduced by Converting It to Equity
As per an ET Telecom report, Lenders led by the State Bank of India (SBI) have suggested to the Department of Telecommunications (DoT) that Vodafone Idea’s debt should be converted into equity since the telco can’t pay all of it looking at its current situation.
The lenders are worried about recovering their money from the cash-strapped telco. In a meeting with the telecom department, the lenders said that Vi hasn’t defaulted on a single payment yet, so they can’t take any action right away.
The lenders were seen backing the telco and asked DoT to save the third-largest telecom operator in India because, more than banks, the telco’s fall would cause harm to the government. Further, the lenders have asked the department to not cancel the telecom license of RCom because that would hinder the bankrupt telco’s resolution process under the Insolvency and Bankruptcy Code (IBC).
The banks are rooting for the DoT to allow Vi’s debt to be converted into equity. This would dilute the current promoters, including the Vodafone Group Plc and the Aditya Birla Group. At the end of FY21 (March 31, 2021), Vodafone Idea owed Rs 1.57 lakh crore to the government. The telco’s in no position to pay off this kind of debt even in the long-term if it doesn’t get external support.