InvestorQ : Is it a good idea that the Vodafone dues have been converted into equity to government?
Niti Shenoi made post

Is it a good idea that the Vodafone dues have been converted into equity to government?

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ishika Banerjee answered.
1 month ago
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Last week, SEBI approved the government decision to convert its outstanding AGR recovery from Vodafone into a 30% plus stake in Vodafone Idea. While this suits Vodafone Idea, does it really suit the government? After all, it was part of the rescue package worked out for telecom sector, which Bharti and Jio had not accepted. The argument was that the government intervened to avoid putting thousands out of jobs at stake and creating bank NPAs of about Rs1.50 trillion. However, it is not clear if the government really should be getting involved since there is no systemic risk unlike the GFC of 2008.

Even after converting due into equity, VI will find it tough to beat the lead that Jio and Bharti have built. So viable exit to the government may be tad ambitious. Eventually, if things don’t work out, the government is left with low value paper and is party to the bankruptcy. It will also end up paying for banking defaults that could happen. The problem is that Vodafone Idea has been losing customers consistently steadily over last 18 months. That is unlikely to change rapidly. Government could have offered them deferral of dues or convert that into a loan with bullet payments. Now the government is caught in a business it understand little and could have as well referred them to NCLT.

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