Mint Primer | Clear signal: How equity deal can play out for Vi

What is this equity conversion all about?

In the telecom sector, there are certain regulatory payments that an operator has to make to the government. These are for spectrum usage (pre-2022), licence fee as percentage of their adjusted gross revenue, and spectrum purchase. In Vi’s case, this is the second time the government has converted part of the dues into equity. Vi, which otherwise would have had to pay the dues in cash, has now given it equity shares (49%) to settle part of it. The operator is in financial distress and needs government support to survive. The government can sell those shares when it wants.

How does this equity conversion benefit Vi?

As of December 2024, Vi’s total debt was around ₹2.3 trillion. Of this, ₹77,000 crore was AGR (adjusted gross revenue) liability and ₹1.4 trillion was the spectrum liability. In 2021, as part of the telecom relief package, the government had imposed a four-year moratorium on some AGR dues from spectrum auctions held before 2021. The moratorium is set to expire in September this year. In the absence of any relief, Vi would have had to bear an outgo of ₹40,000 crore every year. The conversion cuts its debt by 17%, so regulatory payments in FY26 and FY27 are estimated at ₹18,600 crore and 23,600 crore.

Is Vi completely out of the woods?

Analysts say the move eases existential concerns for two to three years. Going by Vi’s free cash flow estimates of ₹15,583 crore in FY25, analysts believe it will need another support from the government in the medium term to stay afloat. Ambit Capital says Vi needs an average revenue per user (Arpu) of over ₹300 compared with ₹173 to be financially viable.

Can’t the firm just raise bank debt?

Vi has been looking to raise ₹25,000 crore from banks in debt for long. However, its heavy dues and weak financial position mean the banks have been reluctant to lend to the company. With the government increasing its ownership in the operator, the equity conversion signals strong support. Banks, however, would want to see more government backing in the company before lending. Analysts foresee more government support, which would enable the company to raise bank debt and complete its capex.

What does this mean for the sector?

For the telecom sector, it signals a three-player private sector with one public operator, BSNL. The government wanted to support Vi to end the duopoly of Airtel and Jio, experts said. The cash flow relief to Vi may also slow down market share shifts towards Bharti Airtel and Reliance Jio, as Vi could spend more on network expansion and 5G launch. Also, if the government decides to provide relief on the pending AGR dues to telecom operators in future, it will benefit both Airtel and Vi, according to analysts.