Bharti Airtel has sprang a surprise by formally writing to the department of telecommunications (DoT), requesting that its deferred adjusted gross revenue (AGR) dues, amounting to around Rs 40,000 crore, be converted into equity under the provisions of the 2021 telecom reforms package, according to people familiar with the matter.
The move on the part of Bharti comes after the government, late last month converted Rs 36,950 crore of Vodafone Idea’s spectrum dues into equity, raising its stake from 22.6% to 48.99%. Before this, the government had converted Rs 16,133 crore of Vodafone Idea’s interest dues into equity.
Based on Bharti Airtel’s closing share price of Rs 1,845.60 on the National Stock Exchange on Thursday, any equity conversion would translate into a government stake of just around 3-4%. Analysts said that such a stake would be relatively easy to offload in the secondary market at a profit, given Bharti’s stable fundamentals and healthy stock performance. In fact, with the dues getting converted into equity, the share price is expected to rise further because the company would have cleared its full liability, save on interest cost, and would be able to deploy funds towards network upgradation and expansion.
A query sent to Bharti Airtel did not elicit any response till the time of going to the press. Government officials also declined to comment on the matter.
The 2021 telecom reforms package provided telecom operators a four-year moratorium on statutory dues like AGR and spectrum payments, though interest would accrue during this period. As part of it, the government also allowed telcos to convert the interest on their deferred dues into equity. While Vodafone Idea opted for both, moratorium and equity conversion, Bharti had opted only for moratorium.
Industry observers said that Bharti’s move is strategically timed, especially considering the upcoming end of the moratorium period. Repayments on the deferred dues are scheduled to begin from September this year.
Bharti has already taken substantial steps to strengthen its financial position. Last month, it pre-paid Rs 5,985 crore to the government, fully settling its liabilities from the 2024 spectrum auctions. With this, the company’s outstanding spectrum debt stands at Rs 52,000 crore, which includes the dues of 2021 and 2022 auctions. It has cumulatively pre-paid Rs 66,665 crore in spectrum liabilities as of now, significantly reducing its average interest burden.
According to company disclosures, the average interest rate on these pre-paid amounts was approximately 9.74%, with some earlier liabilities carrying interest rates as high as 10%. These payments were made almost seven years ahead of their respective maturities, helping the company avoid scheduled repayments totaling over Rs 1.16 lakh crore.
DoT officials said that each equity conversion request will be assessed on a case-by-case basis, suggesting no automatic approvals. However, since the telecom reforms package is for the sector and not any specific company (read Vodafone Idea), analysts said that it would be difficult for the government to turn down Bharti’s request for conversion.