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This article is more than 4 month old.

Vodafone Idea shares rally 15% after govt approves relief package

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Vodafone Idea shares surged over 15 percent Thursday as the ailing telco took a breather after the Centre approved a relief package for the sector. 

Vodafone Idea shares rally 15% after govt approves relief package
Vodafone Idea shares surged over 15 percent Thursday as the ailing telco took a breather after the Centre approved a relief package for the sector. The relief package comprises five processes and nine structural reforms, including redefining adjusted gross revenue (AGR) and giving a prospective moratorium of four years on telecom dues.
According to analysts, this move will give the debt-laden telco a relief worth Rs 65,000 crores. At 9:40 am, the stock was trading at Rs 10.26 on BSE, surging 14.89 percent. The telco has been burdened due to low tariffs and mounting pressure from the government to pay the AGR dues and spectrum payments.
Key highlights of the package
The package provides a temporary prohibition (moratorium) on the payment of the future AGR dues and excludes non-telecom revenue from the AGR dues, but prospectively.
AGR is a fee-sharing mechanism between the government and telcos. Telcos are expected to pay a percentage of their adjusted gross revenue to the government. However, the telcos and govt have been locked in a legal battle over its definition. While telcos argued AGR dues should only include revenues from core telecom services, govt insisted it included both telecom and non-telecom services.
But now the government has "decided to rationalise the AGR definition. Non-telecom revenue will be removed from AGR. This resolves this contentious issue," Ashwini Vaishnaw, the telecom minister said.
After the four year moratorium period, the government will have the option to convert the remaining dues to equity. However, the telecoms won't decide that.
Plus, the companies availing of this moratorium will have to pay interest. A marginal cost of funds based lending rate (MCLR) of 2 percent would be imposed on the companies.


This moratorium is expected to resolve the cash flow problem. "And the improved cash flow can be utilised to upgrade technology," Vaishnaw said.
The other structural reform is on spectrum user charges, license fees, and other fees. This regime was an undue burden on the sector, Vaishnaw said. The cabinet has rationalised this burden. Now instead of monthly interest compounding, it will happen annually. And an interest rate of MCLR plus 2 percent will be levied, with no penalties.
If the business conditions change, the spectrum can be surrendered after 10 years now. Plus, spectrum sharing is free now. Other measures are 100 percent foreign investment in the sector via automatic route.


 
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