After the Indian government decided to convert 's upcoming spectrum dues repayment into equity, in line with the provisions in 2021 , the debt-ridden telco is now nearing as the government's holding would increase from 22.6% currently to 49%.

"With GoI’s stake rising to 49% after the latest equity conversion, any further equity conversion of dues could lead to GoI’s stake crossing 50%, which could turn Vi into a public sector unit (PSU)," Motilal Oswal analyst Aditya Bansal said.

The conversion, which will occur at Rs 10 per share, is at a 47% premium to the stock's last closing price. As a result, Vi shares hit the 10% upper circuit this morning to Rs 7.49 on BSE.

Vi’s existing promoters will continue to have operational control, albeit with a modest 25.5% stake after the equity conversion.

"Overall, we view this as a major display of support by the gov't in a very timely manner, which should provide significant cash flow relief to VI in the next 3 years and help it complete its bank debt raise," Citi analyst Saurabh Handa said.

The conversion of spectrum dues to equity will bring down Vi's overall net debt by 18%. Citi estimates that Vi's spectrum dues (for pre-2021 spectrum) that are payable over FY26/27/28 could reduce from Rs110/250/250bn to Rs5/50/150bn, implying Rs 400bn of cash flow relief over the next 3 years.

"This should help Vi move one step closer to completing its long-delayed debt raise from banks," Citi said.

Besides spectrum dues, Vi also has to repay Rs 16,500 crore annually pertaining to AGR dues, starting March 26, which are not part of the proposed conversion. Motilal estimates Vi’s cash flow to be insufficient to fund its ongoing capex plans alongside AGR dues repayments. However, given the government's commitment to maintaining a 3+1 market construct, there could be further relief on AGR dues.

"We believe stabilization of Vi’s subscriber base, along with further relief measures from GoI, remains imperative for Vi’s long-term survival. Despite the likely acceleration in capex over the medium term, we believe gaining back subscribers would be a tall ask for Vi, given its peers’ superior free cash flow generation and deeper pockets," Motilal said.