Deutsche Bank suggests government to convert Vodafone Idea debt into equity

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Mumbai: The government should convert Vodafone Idea's debt into equity to avoid a situation where only badge players remain in the telecom sector, a Deutsche Bank report said. The bank's report notes that this is the only viable solution after the Supreme Court rejected the application for recalculation of adjusted gross revenue (AGR). This is probably the first time such a suggestion has been seen to save Vodafone Idea.

Most of Vodafone Idea's debt is related to spectrum and AGR's liability and the company will also need 3G spectrum. Private investors are unlikely to come forward in Vodafone Idea as various governments have been believing that telecom capital can be targeted.

The government is saying that there should be at least three players in the telecom sector but it is not taking any concrete steps for that.

In such a scenario, the best option is for the government to convert its debt into equity when merging it with BSNL. After carrying out this process, it should be given clear commercial responsibility on the target of incentives and profitability.

At the end of March 31, Vodafone Idea had a total debt of Rs 1.50 trillion. Of this, Rs 50 crore is outstanding spectrum liability, Rs 3,050 crore is AGR liability and Rs 4,050 crore is bank debt.

The company's current market cap is expected to reach Rs 2,000 crore. Thus, the debt burden on the company's market cap is 3 times. The telecom company has demanded an extension of the moratorium till April 203 to pay the outstanding amount of Rs 5,000 crore for the purchase of spectrum.

The apex court last week rejected a petition filed by Vodafone Idea and Bharti Airtel claiming that there was an error in the AGR calculation.

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