Shares of the telecommunications company would be held through Unit Trust of India, “or by any type of trustee or other suitable arrangement, which may be worked out by the government,” said the Department of Telecommunications (DoT).

In similar letters sent to all carriers on Friday, the DoT said the “present value of interest” on deferred adjusted gross income (AGR) and spectrum auction rights during the moratorium period would be treated as a loan to the operator.

Preferred share price

The government can convert any portion of this loan into “preferred stock, instead of equity stock and such preferred stock may be optionally or compulsorily convertible and / or redeemable and / or equity in nature,” the DoT said.

The order needed to invoke section 62 (4) of the Companies Act will be issued by the relevant department, the letters said, issued after discussions with the finance ministry. The specific section of the Companies Act details how bonds and loans taken out from the government can be converted into equity in a business.

The price of the preferred share “shall be equal to the higher of the average of the weekly highs and lows of the volume-weighted average prices of the participating shares during the last 26 weeks preceding the date in question or of the two weeks preceding the date in question; subject to the provision of Section 53 of the Companies Act (ie shares cannot be less than par value), ”said the DoT, detailing the conversion mechanism.

The relevant date for setting the price of the issue of shares will be August 14, 2021.

On the BSE on Monday, Airtel shares closed at Rs 680.45, down 0.8%, while that of Vi ended at Rs 10.60, down 1.40%. August 14 was a Saturday. On August 13, Airtel and Vi shares closed at Rs 625.58 and Rs 6.32, respectively.

In addition to the option chosen, telecom operators must also submit audited financial statements for 2020-2021 along with relevant stock price details. ET was the first to post the letter on its online platforms.

The letters follow a massive back-up plan announced by the government in mid-September in which the most important elements were a one-time option to benefit from a four-year moratorium on AGR and spectrum payments, as well as a time option to convert statutory contributions into government equity. The measures were seen as offering a lifeline to cash-strapped Vodafone Idea, which was struggling with high debt – Rs 1.9 lakh crore at the end of June, of which around Rs 1.6 lakh crore were government dues – growing losses and rapidly eroding subscriber base. The phone company’s cash balance at the end of June was Rs 920 crore.

By opting for a payment moratorium, carriers can choose to pay the interest in cash, as well as the deferred amount, at the end of the moratorium period. Or, carriers have had “a unique opportunity to exercise the option to convert interest rights into shares in advance …” said the DoT. “… The option to convert the amount of interest into equity shares only applies to the tranches covered by the moratorium, and not to subsequent tranches. “

The government plans to develop a mechanism similar to ‘Vivaad se Vishwas’ (VSV) to reduce litigation as part of its relief and reform measures for the cash-strapped telecommunications sector, ET reported. in its October 5 edition.

The Supreme Court had ordered telecommunications operators to pay AGR dues in annual installments over 10 years – from April 1, 2021 to March 31, 2031. The moratorium extends from FY22-23 to FY25-26, so the revised amounts installments will be paid. over six years – instead of 10 years – up to FY31.

In addition, telecom operators can opt for the moratorium without opting for the conversion of the participation into equity. “In this case, the interest will be payable with the AGR and the spectrum royalties on the due dates in accordance with the terms of the moratorium,” the DoT said in the letter.

By opting for a moratorium on the payment of spectrum auction tranches, telecommunications operators will have to submit financial bank guarantees in an amount equal to the next installments to be paid, including the portion of the deferred / interest amount due with those installments. , the government said.

Beyond the immediate conversion of interest on statutory contributions into equity, the Center also has the possibility of converting into equity the contributions in principle of operators due to deferred payment in equity at the end of the moratorium period – or after four years.

Vodafone Idea and Airtel have previously stated that they are in favor of the moratorium on payments as well as statutory contributions on conversion into shares. It is widely believed that Jio also opts for the moratorium on payments.

The three telecom operators did not respond to ET’s requests.

The Nomura Group estimates that the moratorium will provide Airtel and Jio up to 11,900 crore rupees and 4,300 crore rupees, respectively, in annual cash flow relief.

But Vi stands to gain the most, with analysts expecting annual cash flow relief of Rs 24,000 to Rs 25,000 for the ailing telecom company, which is likely to be used for debt reduction and debt relief. essential investments in the extension of existing 4G networks and for 5G auctions.

Besides immediate cash flow relief, Vi is also banking on the aid plan to be seen as more attractive to potential investors as it needs to raise funds to support the benefits of the aid plan.

While in September 2020, the telecommunications company said it would increase Rs 25,000 crore through a mix of debt and equity, senior management at the telecommunications company said the package was a game-changer and that the company was reassessing the amount of funds it needs to increase.