Deutsche Bank suggests for the merger of BSNL and Vodafone Idea

The government must back state control of Vodafone Idea (Vi) by quickly merging it with Bharat Sanchar Nigam (BSNL) and recapitalise the ailing telco to save it from going bankrupt, especially after the Supreme Court ruled out any relief on its huge adjusted gross revenue (AGR) dues, brokerage Deutsche Bank said.

Vodafone Idea owes the DoT Rs 1.5 lakh crores in adjusted gross revenue (AGR) and deferred spectrum payment dues. At the same time, Vi is looking for raising capital while BSNL is trying to push its 4G operations. Deutsche Bank said that the only viable solution for the government to save either of the telcos is to merge them BSNL, Vodafone Idea, Vi

The brokerage further said that even if this happens, the investors of Vi shouldn’t have a very big problem because the telco’s debt is 6x more than its current market cap which is not a good sign. Deutsche Bank said that Vodafone Idea’s debt is too high, and the government can ease the telco’s pain by converting that debt into equity for itself by merging Vi with BSNL.

As per a report, both of the Vi promoters, including the Aditya Birla Group and Vodafone Group Plc, are ready to reduce their stake in the company if there is another investor who is ready to take over the company. But for that to happen, the promoters have a condition that the new investor would need to purchase the shares of the company at a premium over the current market rate.

The only viable solution is for the government to recapitalise Vodafone Idea by converting its debt into equity, preferably while merging it with BSNL, and then providing it a clear commercial mandate based on profitability targets and incentives,” Deutsche Bank said.