Thread by @ICICI_Direct

📢Vodafone Idea to convert AGR dues worth ₹16,133 Cr into equity.

Govt is now the largest shareholder in #VI with ~33% stake.

Share conversion is at Rs 10:
35% premium to CMP📈

Let's decode:
🔶 Background AGR & the ruling
🔶 Impact on Telcos
🔶 VI's Future

A thread🧵👇
1/13

2/13
Let's start with a statistic:

While losses of #VI increased from ₹4,168 Cr in Mar'18 to ₹28,245 Cr in Mar'22

The count of 'Individual' shareholders in VI increased over 9x:

🔶Dec'18: 3.15L
🔶Dec'19: 5.36L
🔶Dec'20: 12.82L
🔶Dec'21: 21.29L
🔶Dec'22: 29.49L

Source: BSE

3/13
So what are AGR dues?

AGR dues is the duty that Telecom cos. are required to pay to Govt. as %age of their "Adjusted' Gross Revenue"

It consists of:
🔶 License Fee (LF): 8%
🔶 Spectrum Usage Charges: 3-5%

This Govt would charge 11-13% of AGR from telcos

An illustration👇

4/13
How was AGR calculated?

The definition of AGR used to be [A-(B+C)]:

A. Total Revenue (including Dividend, Interest, Roaming charges, Property Rent etc.)

B. Charges paid to other telcos in India

C. GST paid to Govt

For example (see image)

5/13
What was the problem?

We left a hint in the last tweet.

AGR dues were calculated on non-telecom related income as well like:
🔶 Interest
🔶 Dividend
🔶 Rent
🔶 Profit on sale of investment etc.

This led to a dispute between Telcos and Dept of Telecom (DoT) since 2005!

6/13
History & Ruling:

👉 In 2005, Telcos association (COAI) challenged Govt / DoT's definition of AGR

👉 Initially, the Telecom Appellate Tribunal (TDSAT) ruled in favour of telecos🟩

👉 Finally in 2019, the Supreme Court ruled against the Telcos upholding DoT's definition🔻

7/13
As a result?📉

The telcos were required to pay dues worth ₹1.65 Lakh Cr:

🔶 VI: ₹59,236 Cr
🔶 Airtel: ₹31,280 Cr
🔶 BSNL: ₹16,224 Cr
🔶 MTNL: ₹5,009 Cr
🔶 Others: ~43,000 Cr (RCom, Aircel, etc)

This was a big blow to Telcos.

On SC judgement day, VI fell 23%🔻

8/13
As the SC verdict on AGR was tough for industry, the govt offered some relaxations:

🔶 Allowed AGR dues payment over 10 years
🔶 Moratorium on payment for 4 years
🔶 Rationalized AGR definition to exclude non-telecom revenue

The industry consolidated from 12+ to 3 players.

9/13

VI's major liabilities as per latest Annual report:

🔶 Deferred Spectrum Liab.: ₹107,160 Cr
🔶 AGR dues: ₹65,953 Cr
🔶 Bank Borrowings: ₹17,959 Cr

Total cash flow of last 3 years = 697 Cr

This funding gap needed a fund raise.

10/13

VI's Funding gap:

🔶 Promoters infused ₹4,500 Cr in Mar'22
🔶 Co has been trying to raise ₹20,000 Cr since 2020 without success.

🎯Conversion of AGR dues' interest to equity by Govt comes as a relief and probably a final lifeline for survival.

11/13

Relief for Creditors:

🔶 In Q3'23, Indus Towers made a provision of ₹2,298 Cr against #VI's dues citing Going Concern worries

🔶 Key reason being VI's funding plan has not been realized

The conversion might help Indus in re-assessing the 'BAD' status of dues from VI.

12/13
Govt.'s stake post conversion

Govt has asked VI to convert AGR Interest dues worth ₹16,133 Cr

This conversion will be done at ₹10/share, i.e., 35% to CMP📈

The CMP is ₹7/sh [3rd Feb'23]

Govt. stake will be ~33% after conversion. Refer calculation below👇

13/13
Do you think this Equity conversion will be enough to ensure VI's survival? Tell your views in comments.

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14/
Summary:
[1] Govt dues were 11-13% of AGR
[2] AGR included non-telecom revenue
[3] SC ruled Telcos to pay ₹1.65 Lakh Cr
[4] Govt eased via reforms
[5] VI's losses, dues & funding gap
[6] Govt to hold ~33% equity in VI
[7] Individual shareholders up ~10x despite these issues

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