No Open Offer for Vodafone Idea Deal: SEBI Grants Exemption to Government

The Securities and Exchange Board of India (SEBI) has granted an exemption to the Government of India (GoI) from the mandatory open offer requirement, following its proposed acquisition of a substantial stake in Vodafone Idea Ltd (VIL).

The stake increase, resulting from the conversion of spectrum dues into equity, would take the government’s shareholding to 48.99% from its existing 22.6%. The share price of Vodafone Idea was trading down by 3.42% at ₹7.91 as of 10:10 AM.

Why an Open Offer Is Typically Required

According to SEBI’s Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011, any entity acquiring 25% or more in a listed company is generally required to make an open offer to the remaining shareholders.

This rule is meant to safeguard minority shareholders by giving them an exit opportunity when there is a significant change in ownership.

However, in the case of VIL, SEBI has exercised its discretionary powers to waive this obligation, citing compelling public interest and financial implications.

SEBI’s Reasoning Behind the Exemption

In the formal order, SEBI Whole Time Member Ashwani Bhatia stated that the government’s acquisition is intended solely to safeguard the broader public interest and to ensure the continuity of services by VIL, a major telecom service provider (TSP) in India.

He further clarified that there will be no change in management control, and the government will not seek representation on the board of the company.

The increased shareholding will be classified as public shareholding rather than promoter holding, signalling that the government does not intend to run the operations of VIL.

Spectrum Dues Converted into Equity

The exemption follows a recent decision by the government to convert approximately ₹36,950 crore worth of outstanding spectrum auction dues owed by VIL into equity.

This move is part of the broader relief measures announced in the September 2021 telecom reforms package aimed at reviving the financially stressed telecom sector.

VIL opted for the conversion of debt into equity as part of these reforms, which offer telecom operators the flexibility to defer payment of statutory dues and convert interest payments into equity.

Financial and Policy Considerations

SEBI’s order underscores the financial strain an open offer would have imposed on both VIL and the Government. With VIL owing a substantial sum to the exchequer, enforcing an open offer could have further complicated the company’s financial recovery and necessitated a significant cash outflow from the government’s side.

Additionally, SEBI acknowledged that the transaction aligns with broader public policy goals, particularly in stabilising the telecom sector and protecting banks with large exposures to telecom companies.

Conclusion

This development reflects the government’s continued efforts to provide support to the ailing telecom sector, which has been under pressure due to mounting debts and intense market competition.

The decision to allow conversion of dues into equity, coupled with SEBI’s exemption, is seen as a pragmatic approach to easing the financial burden and ensuring the survival of key telecom operators.

While the government’s increased stake would normally trigger regulatory obligations, SEBI’s exemption represents a balancing act between strict adherence to the takeover code and broader economic stability.

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