Indian Government Majority Stake in Vodofone

January 12, 2022

The Vodofone recently announced that its board members have given permission to convert the Adjusted Gross Revenue dues to equity. With this GoI will now have 35.8% of share in Vodofone company. This makes it the largest shareholder of Vodofone.

Background

The Vodofone had to pay Rs 58,254 crores of Adjusted Gross Revenue to the Government of India. It has already paid around 7,000 crores of rupees. The pending is around 50,000 crores of rupees. The company has converted this pending amount into shares.

What happened?

In 1999, the Government of India shifted from fixed model to revenue sharing model. In fixed model, the telecom companies have to pay a specific and constant spectrum fee. In revenue sharing model, they have to pay a part of their revenue as spectrum charges. In 2003, the Department of Telecommunication included AGR payment in the fee. AGR is the revenue earned from all sources. This included dividend from non – telecom sources as well. The telecoms were against this. They went to TDSAT (Telecom Disputes Settlement Appellate Tribunal). Issue couldn’t be settled. In 2019, Supreme Court pronounced that the definition of AGR as given by the GoI, that is, by the Department of Telecommunications is the right one.

What is the current situation of Vodofone?

The Vodofone Group is the promoter. It will now hold 28.5%. The Aditya Birla Group has 17.8% share. Earlier, Vodofone had 44.39% and Birla had 27.66%. After the proposal was announced the Vodofone shares dropped by 19% in the share market. The Vodofone has allotted the shares at Rs 10 to the GoI.

Role of Reliance

Several companies started facing market issues after Reliance Jio of Mukesh Ambani entered. The maximum impact was on Bharti Airtel and Vodofone Idea. Airtel has to pay a due of Rs 43,980 crores. It has so far paid Rs 18,004 crores. And is yet to pay Rs 25,976 crores. However, Airtel is not ready to convert the interest amount to equity.

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