What happens to telecom company ownership after the equity swap and will it benefit the government in a big way?

Here is what you must know about the latest update to the telecom story in the form of government converting interest on AGR dues to equity.

· While Bharti Airtel has opted not to convert its AGR interest dues into equity, the other two telecom players viz. Vodafone Idea and Tata Tele have opted to offer government an equity stake in their companies in lieu of interest on their AGR dues.

· As of now the final numbers are awaited. However, one can estimate how much the government is likely to own in the telecom companies. Vodafone Idea with dues of Rs.16,000 crore will give 35.8% stake to the government while Tata Tele, will give the government 9.2% stake against its relative lower dues of under Rs.1,000 cr.

· What happens to ownership now? Government will remain a small shareholder in Tata Tele with Tata Sons being the largest shareholders. However, in case of Vodafone Idea, government will become the largest shareholder with 35.8%.. that will be more than the stake of Aditya Birla Group and Vodafone PLC.

· Since the government will forfeit its dues of Rs.16,000 crore outstanding against the equity stake, it loses the cash inflow for the year. It is yet to be tested and proved if such an acquisition of stake makes value case for the government.

· As of now, the government gets two big-time loss makers. For instance, Tata Tele has made losses in 80 out of the last 82 quarters. In the case of Vodafone, the equity is entirely wiped out by accumulated losses and to top it all, Vodafone Idea has total borrowings of Rs.195,000 crore on its books.

· One likely possibility is that the government may work out a multi-tier deal with stake holders like banks, state PSU telcos and the current owners. However, it is not clear to what extent, such a deal will be feasible. The government must ensure it does not end up underwriting the losses of Vodafone Idea without any commensurate gains.