The government should convert Vodafone Idea’s (Vi) debt into equity to avoid a duopoly in the telecom sector, Deutsche Bank Research said in its report on Monday. This, the bank suggested, would be the only viable solution in the backdrop of the Supreme Court dismissing the telecom company’s application for recomputation of adjusted gross revenue (AGR) dues. “The vast majority of Vi’s debt is spectrum and AGR obligations, and the company will need to take on 5G spectrum at some point too.

Private investors are extremely unlikely to save the company, given successive governments seeing telecom capital as something to target,” Deutsche Bank research analyst Peter Milliken said in his report. “So we think the only viable solution for India to keep Vi is for the government to convert its debt into equity, preferably while merging it with BSNL, and then providing it a clear commercial mandate based on profitability targets and incentives,” he suggested. Vi had a debt of Rs 1.8 trillion as of March 31 consisting of deferred spectrum obligations of Rs 96,270 crore, AGR liability of Rs 60,960 crore and bank debt of Rs 23,080 crore.

Its promoters, Aditya Birla group and Vodafone Plc of UK, own 72.05 per cent stake in the company and its current market capitalisation is over Rs 23,000 crore. Vi’s existing shareholders would be heavily diluted as the government debt is roughly six times the company’s current market capitalisation, but such a solution might be an acceptable outcome to shareholders, he said.

News Source : Economic Times