Vodafone Idea announced to the bourses that it would opt for the central government’s option of paying interest accrued over the four years of deferment on spectrum instalments and adjusted gross revenues dues (AGR) through conversion into equity of the net present value (of the interest). This would mean that the government would take up a 35.8 per cent share in the telco, with Vodafone Idea’s share percentage falling to 28.5 per cent and Aditya Birla Group’s also tumbling to 28.5 per cent.
“The Net Present Value (NPV) of this interest is expected to be about Rs 16,000 crore as per the Company’s best estimates, subject to confirmation by the DoT,” said Vodafone Idea. The equity shares to be issued to the government are to be valued at Rs 10 per share since the average price of Vodafone Idea’s shares at the relevant date of August 14, 2021, were below par.
The AGR dues case, explained
When the Indian government liberalised the country’s telecom sector in 1994 under the National Telecom Policy, licenses were issued under the provisions outlined in the Indian Telegraph Act, 1885.
The law required telecom operators to pay a fixed annual fee for licenses. However, the steep fee often saw telcos defaulting, and in 1999, amendments to the policy were introduced which provided telcos with the option of switching from a fixed fee to a revenue-sharing agreement. Under the revenue-sharing model, the AGR was fixed at 15 per cent but by 2013 it had fallen to 8 per cent.
The dispute between the DoT and telcos emerged over the definition of AGR. A decade-long legal battle ensued with the DoT arguing that the AGR definition ought to include revenues from both telecom and non-telecom services, and the operators asserting that it should only include revenue from their core services.
On October 24, 2019, the apex court delivered a verdict in favour of the DoT that saw the AGR definition expanded. This immediately exposed the telecom operators to AGR-related due demands of over Rs 1 lakh crore made by the DoT.
As of June 2020 last year, the DoT submitted that it was owed Rs 119,292 crore of which Rs 25,896 crore had been paid by the telcos. Bharti Airtel had paid Rs 18,004 crore out of its owed Rs 43,980 crore, Vodafone Idea had paid Rs 6,354 crore out of its owed Rs 58,254 crore and Tata Teleservices had paid Rs 4,197 crore of its owed Rs 16,798 crore.
In September 2020, the top court gave the telcos a 10-year timeline to pay the remaining dues, instead of the 20-year schedule originally suggested by the DoT. But in January 2021, the three telcos filed a plea in the apex court claiming that there existed ‘mathematical errors’ in the calculation of the owed AGR dues, requesting a recomputation of the fees by the country’s telecom regulator. This plea was dismissed by the apex court in July 2021 leaving the telcos with no option but to stump up the outstanding sums by March 31, 2031.
Taking cognisance of the telcos woes though, the central government, in September, announced a relief package that included a spectrum payment moratorium option, another option to convert interest on airwaves to equity, and reduced bank guarantees among other provisions. Vodafone Idea had already accepted the four-year moratorium option but, today became the first telco to avail of the equity conversion provision as well.
