The deadlock between Vodafone Idea and the Centre over debt to equity conversion has ended with the latter agreeing to convert dues worth ₹16,000 crore into equity. This is an important decision given that banks and potential investors had made this step from the Centre as a precondition to extend fresh funding.

These dues are the interest payments on Vodafone Idea’s deferred spectrum auction installments and AGR dues. On Friday, Vodafone Idea informed the exchanges that the Ministry of Communications told the company to convert debt to equity in line with the reforms and support package for the telecom sector brought by the Centre in 2021, to save Vodafone Idea from insolvency.


The company was on the brink of insolvency in September 2021 as well, however, the reform package deferred impeding spectrum payments. The Centre further gave the operators the option to convert the NPV of the interest of the dues to equity as well. Vodafone Idea chose to exercise these options. The Centre hoped that Vodafone Idea will be able to raise investments before the conversion would happen.

It was essentially a catch-22 situation wherein Vodafone Idea stated that the investors will invest money into the company only if the government exercises the conversion option. The Centre countered saying that promoters and investors will have to put further capital before Centre converted dues to equity. Experts said with the government now taking up the equity share in the company, the beleaguered telecom operators should be able to raise finances to fund its 5G rollout plans.

Dire situation

The company has been running on minimal cash for the past few months. The operator was in a dire situation, where interest payments to lenders are about to come up and dues to major tower companies Indus and ATC are also pending. The deadline for the debt-to-equity conversion option would have lapsed on March 31, therefore the government’s ascension on this matter comes in a timely manner, experts said.

“Lenders were also refusing to extend new credit to Vodafone Idea unless the Centre exercised the conversion option. The Centre’s assistance was necessary for investors to confident about the going concern of the company,” an expert said.