The final contours of the telecom stakes are now well known. Bharti will not convert its AGR interest dues into equity while Vodafone Idea and Tata Tele will give the government an equity stake in their companies in lieu of AGR dues.
How much government owns?
The final stake dilution details are yet to be known, but one can make estimates based on the average price and the NPV of the interest payable on the AGR dues once the 4-year moratorium is over. In the case of Vodafone Idea, the dues of Rs.16,000 crore will translate into a 35.8% stake for the government while in case of Tata Tele, the government will own up to 9.2% stake against its relative lower dues of under Rs.1,000 cr.
Becoming the largest owner
The government will remain a minority shareholder in Tata Tele with the Tata group being the largest shareholders. However, in the case of Vodafone Idea, the government with 35.8% will be the largest shareholder with the holdings of Vodafone UK and the Aditya Birla group being lower than the government. It must be remembered that this is in lieu of the Rs.16,000 crore outstanding dues from Vodafone, so that amount has been forfeited against the equity stake. The billion-dollar question, is whether such an ownership will really make a big difference either to the company or to the government in any meaningful way?
Inheriting massive losses
Telecom has traditionally been a winner take it all business and has little room for players ranked below the top 2. Tata Tele has been around for nearly 22 years and in the last 82 quarters, it has made losses in 80 quarters and profits in just 2 quarters. In case of Vodafone, the equity is already entirely wiped out by the accumulated losses and it still has borrowings of Rs.195,000 crore on its books. It is still not clear what is the difference that the government stake in Vodafone will either make to the centre or to the company performance.
What about existing PSU telcos?
Owning telecom companies is nothing new to the Indian government. It owns MTNL and BSNL and both have been among the biggest drags on the centre in terms of losses, despite having first mover advantage. The government has promised that Vodafone would continue to operate as a private company with little government interference. That just defeats the entire purpose because if there is a major default by Vodafone, then the government automatically is the biggest stakeholder in the default. One possibility is that the government may work out a multi-tier deal with banks, state PSU telcos and the current owners. However, it is not clear how much such a deal will be feasible. The government must ensure it does not end up bearing the Vodafone cross!