New Rescue Plan: Govt to own 36% in Vodafone Idea after converting dues

Vodafone Idea Ltd. in a recent statement said that the Indian government will own around 36% of the company following the approval of the conversion of dues into equity by its board.

The movement will result in the suspension of all existing shareholders of India’s third-largest wireless phone operator, including the founders. The statement was passed by the company during stock exchange filing.

Reportedly, Vodafone Group Plc will acquire around 28.5% and Aditya Birla Group will own around 17.8% of the company.

Vodafone Idea is a joint venture between the Vodafone Group and billionaire Kumar Mangalam Birla’s conglomerate. Reportedly, the wireless phone operator owes Rs 160 billion to the state exchequer for spectrum and other dues. The company was unable to gain any profit since the 2016 brutal price war initiated by Reliance Jio Infocomm Ltd.

The rescue plan will be a stopgap measure for the company that has been losing customers to its big rivals. Besides, investors will also be concerned about the sudden change in the state control means.

“While this would stave off the immediate danger of bankruptcy, it does not augur well for any equity investor in a private company” in the company, said Utkarsh Sinha, managing director at consultancy Bexley Advisors in Mumbai. “Obvious concerns about its performance as a semi-state run unit aside, this sends a very negative signal to the business community.”

Vodafone Idea suffered at least 19% during trading in Mumbai, most in over five months. Benchmark S&P BSE Sensex was trading marginally higher on Tuesday.