Why has Bharti Airtel refused to accept the government offer to convert interest on AGR charges into equity?

Let me clarify that the government package has two parts. The first is about moratorium on payment of AGR charges, which Bharti has accepted. It has only not accepted the second part of the relief package which was to convert the interest charges into equity in Bharti. That is what Bharti has not accepted. It only means that Bharti Airtel would prefer to pay the interest due to the government on completion of moratorium than convert to equity.

It may be recollected that as part of the relief package announced to ease the burden on telecom companies, government had announced 2 important changes. Firstly, the government had offered a moratorium on payment of Spectrum Usage Charges (SUC) and AGR charges. This was for a period of 4 years, subject to interest payment. The second was the possible waiver of this interest with an offer to convert the same to equity stake.

Airtel had accepted the offer for moratorium and the same had been communicated to the government in September itself. However, it had been non-committal about the conversion to equity at that point, as it had time till end of December 2021 to make the final decision. Now Bharti has conveyed that it would not be keen to convert the interest portion to equity and would instead prefer to pay the interest amount due on that moratorium.

While announcing the relief package, the government had clarified that there would be a 4 year moratorium on AGR charges and spectrum usage charges (SUC). However, this would be subject to payment of interest at extant rates on outstanding amount for moratorium period. For Bharti, the moratorium made sense as the cash flow saving would allow Bharti to channel funds into productive requirements including hardware and software.

The reason Bharti has not accepted the equity conversion is it would have either resulted in loss of control or dilution of the EPS and of valuations. Currently, Bharti is confident of raising the requisite funds to pay the monies when they are due four years down the line, as was evident from the stupendous response to its rights issue. This will help Bharti to pay back the AGR charges and the interest when they become due.