Thursday, September 23, 2021

HOW Vodafone-Idea will become a state-owned company ?

 Vodafone-Idea will become a state-owned company if the arrears are converted into equity
HOW Vodafone-Idea will become a state-owned company ?
 HOW Vodafone-Idea will become a state-owned company ?

The Department of Telecom (DOT) may issue guidelines within two weeks on how the arrears of telecom companies can be converted into public equity. This is a great relief, especially for Vodafone-Idea. But experts believe that if the debt is converted into equity, it will basically become a state-owned company. Credit Suisse said in a research report that the government's stake in Vodafone-Idea could be as high as 70 percent.


Sunil Bharti Mittal, chairman of Bharti Airtel, also said he would use the four-year moratorium on payments related to annual revenue (AGR). Through this, the company will get Rs 35,000 to Rs 40,000 crore for investing in networks and technology. His assessment is that if the amount of interest is converted into government equity, only 2 to 3 percent of the shares will have to be paid to the government.


Provision of suspension for four years


The cabinet on Wednesday announced a relief package for the telecom sector. There is a provision that the government can take equity shares of the company in lieu of license fees, spectrum usage charges, interest, and fines. The government has given four years of relief to the companies to pay the arrears. That means companies don't have to pay for four years. However, they have to pay some interest on this. After four years, the government will have the option to participate in the company for the amount of interest or full debt.


Companies are also expected to get discounts on spectrum usage charges. According to the cabinet decision, companies will have to pay a lump sum for future spectrum auctions. It will not charge any user every year. Spectrum usage charges are currently to be paid as part of the AGR. There is a separate calculation formula, according to which Airtel will have to pay 4 to 5 percent usage charges of AGR in most circles and 3 to 4 percent usage charges for Reliance Jio. For Vodafone-Idea, this is more than 5% in most circles.


The advantage of taking a loan is a low bank guarantee


The government has also decided to reduce bank guarantees for telecom companies. According to the report, if Vodafone-Idea and Bharti Airtel use the 4-year suspension, the government may return a bank guarantee of Rs 14,000 crore to Vodafone-Idea and Rs 8,000 crore to Airtel. This will make it easier for banks to lend more to companies. Under the old rules, companies had to provide a bank guarantee against all payment receivables. In lieu of license fee, etc., a 100 percent bank guarantee had to be given, which has been reduced to 20 percent. This will help companies to get more loans from banks.


Meanwhile, rating agency ICRA estimates that the government will receive Rs 2,000,000 crore in non-tax revenue from the telecom sector this year. A provision of Rs 54,000 crore was made in the budget for this. This could have an impact on the revenue deficit. However, while giving information about the cabinet decision, Telecom Minister Ashwini Vaishnav said that the impact of the package would be revenue-neutral for the government, i.e. not profit or loss.

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