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This decision follows the 2021 Cabinet reforms, which had already removed the BG requirement for spectrum purchased going forward
The Union Cabinet has approved a waiver of bank guarantees for telecom companies
The Union Cabinet has approved the waiver of bank guarantees (BG) for telecom operators on spectrum purchased before 2022, providing significant relief to companies like Vodafone Idea, which owes over Rs 24,700 crore in BGs, according to sources. Indian telecom operators, including Airtel and Vodafone Idea, collectively face BG obligations exceeding Rs 30,000 crore.
This decision follows the 2021 Cabinet reforms, which had already removed the BG requirement for spectrum purchased going forward. By extending this relief to older spectrum holdings, the government aims to alleviate financial pressures in the telecom sector and enhance its stability.
Vodafone Idea has consistently highlighted its financial challenges, urging the government to eliminate the BG requirement to ease its spectrum payment burden. The company argued that such a waiver would facilitate additional credit from banks, offering crucial financial support.
The company recently failed to pay a second BG of about Rs 350 crore, which was due on November 1, for spectrum purchased in a 2012 auction. This followed a missed payment of over Rs 4,600 crore for a BG related to a 2016 spectrum auction in September.
Vodafone Idea has raised Rs 24,000 crore through equity and is now aiming to secure another Rs 25,000 crore in loans and Rs 10,000 crore in BGs or letters of credit. These funds are vital for the company to continue its capital expenditure and compete with Airtel and Jio.
However, banks remain cautious, adopting a wait-and-see approach due to Vodafone Idea’s stressed financial position and are requesting more corporate guarantees before extending further credit.
The BG issue became prominent after the Department of Telecommunications (DoT) returned all BGs in late 2021, as no installment was due for 35 months. The telecom reforms of September 2021 provided telecom companies with a four-year moratorium on spectrum fees and adjusted gross revenue (AGR) dues.
Vodafone Idea Shares Rally
Shares of Vodafone Idea Ltd (VIL) climbed 18 per cent in Tuesday’s trade, with Bharti Airtel Ltd also rising 1 per cent.
Following the development, Vodafone Idea shares climbed 18 per cent to hit a high of Rs 8.09. Despite this, the stock is down 7 per cent in the past one month.
Vodafone Idea’s net debt (excluding leases, but including interest accrued and not due) increased Rs 9,300 crore sequentially in Q2 to Rs 2.12 lakh crore on dues repayment to vendors/banks and also spectrum acquisition. VIL owed Rs 2.23 lakh crore to the government for deferred spectrum (Rs 1.52 lakh crore) and AGR dues (Rs 70,300 crore).
In a November 15 note, Nomura India said the key takeaways from the post-results conference call with the Vodafone Idea management indicated that VIL has primarily lost its subscribers to BSNL due to tariff hikes announced in July 2024 but the trend has started reversing from August onwards.
The Vodafone Idea management expects the full impact of tariff hikes to be reflected over the next two quarters. VIL will start 5G rollout in key geographies by Q4FY25, the management suggested adding that VIL’s targets to increase 4G population coverage to 120 crore by September 2025E.
VIL added 42,000 4G sites and shut down 19,700 3G sites in Q2FY25. The capex was guided at Rs 8,000 crore for 2HFY25 and Rs 50,000-55,000 crore over the next three years.
“Vi has written to the DoT to waive off bank guarantee (BG) requirement worth Rs 24,700 crore (to be submitted from September 2024 to February 2025) to securitise spectrum installments. We believe Vi’s debt raise is also contingent on securing BG waivers,” MOFSL said in an earlier note.
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