The kind of debt Vodafone Idea has, it will be very hard for the telco to pay it all in the next few years. The relief package will help the telco in stabilising a lot, but it will still require Vi to increase its revenues significantly and that too very fast to reach a good position. To ease the pain of the telcos even further, the Indian government is working on a mechanism that will allow the telcos to surrender a part of their company’s equity against the debt they owe to the Centre. According to an ET Telecom report, the government will be ready to take equity against the interest accruing over the telcos’ four-year moratorium amount. Converting even a small part of debt into equity will be good for both the government and the companies both.
DoT and FinMin Working at The Mechanism Right Now
The Department of Telecommunications (DoT) and the Finance Minister (FinMin) are working on the mechanism right now. It will soon be clear how the telcos can go ahead with converting their debt into equity for the government.
The telcos might be able to do this in two ways. One would be to convert the total interest accrued after four years into equity for the government, or the second would be to convert the interest owed at the end of each year into equity.
If Vodafone Idea goes with the payment deferral option, the telco’s debt towards the government will increase by Rs 15,000 crore in the form of interest accrued. Now either the telco could pay this amount to the government, or it can give up a part of its equity to the Center. The great thing is, this ensures that the telco wouldn’t shut down due to debt. The government is here to save it and the complete telecom sector. The DoT and FinMin should work out the details soon enough.