Dear Mrs. Nirmala Sitharaman,
The solution to any problem is to define the problem properly. At the heart of the Vodafone Idea quagmire is the cash flow mismatch. If we can reduce excess debt in the near future relative to cash – plus expected receivables – we can ensure that Vodafone Idea remains a continuing concern.
This can be done by first converting bank loans and unpaid AGR (Adjusted Gross Income) contributions into zero coupon bonds with a term of at least 10 years.
The zero coupon would ensure that Vodafone Idea has excess cash to reinvest in serving its vast customer base, ensure healthy competition in the market for telecommunications services, prevent the banking system from being burdened by other NPAs, and provide a tangible financial asset tradable at the Ministry of Telecommunications (DoT).
Zero coupon bonds could be issued at an appropriate discount and yield at maturity to reflect the lack of appropriate collateral. Once issued, the usual discount for calculating risk capital would apply to them.
Banks that can trade them in or out of them would create liquidity behind India’s very first junk bond issue Vodafone Idea could make. The DoT can choose any bank to manage its portfolio of unwanted bonds and, over time, trade those bonds to receive real money.
With the initial difficulties of a revival of the new Vodafone idea which are supported with this realignment of cash flow, new investors as well as promoters may find it attractive, promising and viable to consolidate equity with new investments as well. .
It is a win-win solution. A problem is solved by attacking the root. A solution should not create new problems or ignore related problems. It gives strong signals of honorable governance, evoking greater confidence and therefore greater appreciation of the economic bet that India is.
It is also possible to consider encouraging Vodafone Idea to set up a brand new company and conduct a 1: 1 share swap to maintain identical shareholding to ensure that the larger shareholder base does not lose out. and that the new company can benefit from lower income tax provisions for new registered companies. Even though some dues go awry and are difficult to collect, creditors and their debtors are in a difficult relationship until death does part them. A good creditor ensures that the death is postponed so that nothing can then do the debtors apart from the creditors.
The author is the founder and CEO of the market research company KEDIANOMICS