What will be the impact of Vodafone diluting its stake to the government against its AGR interest dues?

Vodafone has accepted the offer of the government to convert its AGR interest dues into equity stake for the government of India. Vodafone has already informed the exchange also about the same. It is expected that the present value of the interest payable at Rs.16,000 crore might result in dilution of equity to the extent of 35.8% ownership to the government. Thus the government is likely to become the largest owner of Vodafone Idea.

Ironically, the government will end up owning 35.8% stake in Vodafone Idea while it will forfeit the AGR dues in cash. In other words, it gets a beleaguered telecom company with total debt of Rs.195,000 crore and billions of dollars in accumulated losses. It remains to be seen if the deal adds value for the government. Just a day earlier, Bharti had declined the proposal to convert the interest dues into equity stake.

Interestingly, the stock of Vodafone reacted negatively to this news and fell 20% on Tuesday closing gat Rs.11.75. During the day, Vodafone was the most traded counter on volumes nad value, trading 211 crore shares valued at Rs.2,640 crore. Vodafone has a 52-week high of Rs.16.80 and a 52-week low of Rs.4.55. Its market cap stands at Rs.33,908 crore but it is the debt and the accumulated losses that are the real challenge.