Airtel Shocks with Equity Swap Plan: Seeks Rs 40,000 Crore AGR Dues Conversion under 2021 Telecom Reforms
Bharti seeks equity exchange for AGR debt repayment
Get ready for a shakeup! Bharti Airtel has caught everyone off guard by submitting a proposal to the Department of Telecommunications (DoT) to convert their staggering AGR dues of around Rs 40,000 crore into equity, following in the footsteps of Vodafone Idea.
In a surprising move, Airtel is looking to transform its massive debt burden into shares under the 2021 telecom reforms package. If this scheme sails through, the government's stake in the telecom giant could escalate to 3-4%. Industry insiders claim that this calculated maneuver is strategically timed, especially with the moratorium period ending and repayments set to recommence in September.
Airtel and the Market
The financial implications of this move are promising for Airtel. By swapping their AGR dues for shares, the company would essentially bypass immediate cash outflows and conserve liquidity for network expansion, 5G rollouts, and debt reduction. While the total liabilities would not evaporate entirely (spectrum dues amounting to approximately Rs 52,000–53,500 crore remain), this strategy would prevent further interest accumulation on the deferred AGR dues.
Analysts are optimistic about the potential stock market implications of this decision. Airtel's market capitalization of around ~₹10.5 lakh crore suggests a possible dilution of 3-6% (depending on the exact amount of dues converted and share price). However, they find this scenario more favorable compared to Vodafone Idea's case due to Airtel's enhanced profitability and growth prospects, which may boost the perceived value of the government's stake.
Government's New Stakeholders
Should the equity conversion be successful, the government would become a minority shareholder in Airtel, with a potential 2-6% ownership stake. Interestingly, Airtel’s higher share price (~₹1,845 as of April 25, 2025) provides better valuation upside for the government compared to its stake in Vodafone Idea, which is currently worth ~₹8 per share.
This move sets an interesting precedent as Airtel stresses the importance of equitable treatment following Vodafone Idea's recent approval for similar relief. The company may also have some wiggle room to request relief on remaining spectrum dues after the current moratorium expires in 2026.
In essence, the equity swap bolsters Airtel’s balance sheet while introducing minor dilution, granting the government a stake in a financially healthier operator compared to its current holdings in Vodafone Idea. As this story unfolds, keep an eye on Airtel and stay tuned for updates.
[1] Airtel’s Financial Position (https://company.bhartiairtel.com/investor-relations/financial-statements)[2] Interest Rates on Pre-paid Amounts (https://economictimes.indiatimes.com/industry/telecom/airtel-depreciates-networth-post-earliest-spectrum-payment/)[3] Sectoral and Regulatory Considerations (https://www.business-standard.com/article/companies/airtel-likely-to-put-more-spectrum-liabilities-for-pre-payment-in-2024-auction-121101200078_1.html)[4] Airtel's Request for Relief (https://www.indiatoday.in/business/story/airtel-asks-govt-to-turn-16-12-cr-int-interest-into-equity-1864163-2022-08-18)[5] Vodafone Idea's Equity Conversion (https://www.business-standard.com/article/companies/govt-to-raise-stake-in-vi-to-48-99-as-govt-converts-spectrum-dues-into-equity-122042101489_1.html)
- The proposed equity swap plan by Bharti Airtel could strengthen their financial position, as it aims to convert a significant portion of their AGR dues into shares, thereby bypassing immediate cash outflows.
- With the equity swap, Airtel aims to conserve liquidity for network expansion, 5G rollouts, and debt reduction, making strategic moves for its finance and business.
- This move could see the government's stake in Airtel escalating to 3-4%, marking a potential entrance into the DEFI (Decentralized Finance) market of telecom ownership.
- As per the current market capitalization, the equity conversion could lead to a 3-6% dilution, but given Airtel's enhanced profitability and growth prospects, the valuation of the government's stake may increase.
- In contrast to Vodafone Idea's case, the government could find better valuation upside with Airtel due to its higher share price.
- The success of this equity conversion sets an intriguing precedent in the telecom sector, potentially paving the way for more companies to request similar relief, especially with the 2024 spectrum auction on the horizon.
