To Save Vi (Vodafone Idea), Converting Debt To Equity is One Option.Converting the debt of cash-strapped Vodafone Idea (Vi) to equity is one option to get out of the precarious position banks are in, lenders led by State Bank of India (SBI) have said, concerned over their exposure to the telecom operator.
At a meeting with the telecom department on Friday to discuss the stress in the sector, the lenders, however, said that since Vodafone Idea had not defaulted on its debts so far, they cannot take any action yet.
They instead pushed the Department of Telecommunications (DoT) to take steps to save the carrier, failing which the government would stand to lose a lot more than banks.
The banks, which also have a high exposure to bankrupt Reliance Communications (RCom), urged DoT not to cancel its telecom licence, saying such a move would kill its entire resolution process under the Insolvency and Bankruptcy Code (IBC).
“DoT asked banks about their plans regarding Vodafone Idea…they said although no major default has happened, converting debt to equity is an option,” an official aware of the development said.
The Aditya Birla group holds 27.66% in Vodafone Idea, while co-parent Vodafone Group owns 44.39%. The rest is with the public.
The way forward is to restructure the funded exposure and convert the unsustainable debt into equity, another lender added.
“But we are hopeful that DoT and the government will come up with a solution because they have significantly higher dues,” the lender said. As of March end, Vodafone Idea owed Rs 1.57 lakh crore to the government, including Rs 96,270 crore towards spectrum payments and the rest towards its adjusted gross revenue (AGR) liability.
Rs 35,000 crore total bank exposure
In comparison, banks have a total exposure of a little over Rs 35,000 crore, of which the funded exposure is close to Rs 13,800 crore, which is under risk of default, the lenders said.
The remaining is non-funded exposure in the form of bank guarantees to DoT, which is not under imminent threat unless the department draws down on them, which is unlikely. The telco also has another Rs 7,500 crore in debt in the form of non-convertible debentures.
"The total bank funded exposure is quite low and may not create wider implications across the banking system, although individual banks may have higher NPLs (non-performing loans)," brokerage house Nomura said in a recent report.
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