The government is closer to converting the interest in Vodafone Idea Ltd into equity, with the Ministry of Finance notifying the telecommunications sector that it can proceed with the deal.

According to an official with knowledge of the matter, the Ministry of Finance’s Department of Investment and Public Assets Management (DIPAM) gave the go-ahead for the government to eventually receive a pro-rata stake in interest on dues owed by the third-largest telecommunications company.

“The final stake will be determined soon, but we have already obtained approval,” another official said, adding that notification of approval would be sent to Vodafone Idea within a week.

The telco marketed by Aditya Birla Group is waiting to convert interest on adjusted gross revenue (AGR) related dues for FY17 into equity, after which the government will own about 33% of the operator, making it the largest shareholder. The promoter equity will be reduced to 50% from nearly 75%.

As part of the rescue package announced in September, the government offered Vodafone Idea the option to suspend the payment of Rs 16,000 crore in dues.

The telecom unit also offered the company an option to convert interest on dues worth Rs 8,837 crore into equity. The opportunity to convert dues was offered to companies last month, valid until September 15.

The shareholding structure could change as Vodafone Group Plc’s entity Euro Pacific Securities increases its stake by Rs 436 crore.

The carrier held an extraordinary general meeting on July 15 to seek shareholder approval.

In March, promoters of Vodafone Group and Aditya Birla Group raised a combined Rs 450 crore. The promoter equity injection could make it easier for the company to raise around Rs 20,000 crore in debt and equity from outside investors, a daunting challenge so far.

Ravinder Takkar, CEO of Vodafone Idea, had earlier said that the company is closer than ever to securing funding from investors and that promoters are willing to put in more equity if needed.

The company has been under financial stress for the past few years despite the government’s rescue package in September, which provided struggling telcos with four-year deferrals on the spectrum and other payments and a moratorium on converting interest into equity. Measure.

The carrier has narrowed its third-quarter loss to Rs 6,563 crore from Rs 7,230 crore in the previous three months but still has a massive debt of Rs 1.96 trillion as of March 31. The debt includes Rs 1.13 trillion in deferred spectrum payment obligations, i.e., Rs 65,950 crore payable by AGR to the government and Rs 18,070 crore to banks and financial institutions.