Indian telecom operator Vodafone Idea Ltd said on Tuesday its board has approved conversion of the full amount of interest related to spectrum auction instalments and dues owed to the government for use of airwaves into equity.
The "net present value" of the interest is expected to be about 160 billion Indian rupees ($2.16 billion), according to the company's estimates.
Vodafone Idea's shares were down 10% at 13.40 rupees.
Following the conversion into equity, the Indian government is expected to hold about 35.8% of the total outstanding shares of Vodafone Idea. Promoter shareholders Vodafone Group will hold 28.5% and Aditya Birla Group 17.8%.
"Dilution in stake is something the promoters or existing shareholders do not welcome much. Somewhere around 10% to 15% of dilution to the government would have been welcomed," said Likhita Chepa, senior research analyst at CapitalVia Global Research.
India's telecom sector was disrupted by the entry of billionaire Mukesh Ambani's Reliance Jio and forced some rivals out of the market. The sector's troubles have also been compounded by the huge dues owed to the government.