The decision follows the 2021 Cabinet reforms, which had already done away with the BG requirement for purchased spectrum going forward.
The Union Cabinet has approved the exemption. Bank Guarantee (BG) for Telecom Operators on Spectrum According to sources, the acquisition before 2022 provides significant relief to companies like Vodafone Idea, which owe over Rs 24,700 crore in BGs. Indian telecom operators including Airtel and Vodafone Idea face cumulative BG liabilities that exceed Rs 30,000 crore.
The decision follows the 2021 Cabinet reforms, which had already done away with the BG requirement for purchased spectrum going forward. By extending this relief to legacy spectrum holdings, the government aims to reduce financial stress in the telecom sector and enhance its stability.
Vodafone Idea has consistently highlighted its financial challenges, urging the government to scrap the BG requirement to reduce its spectrum payment burden. The company argued that such a waiver would facilitate additional credit from banks, which would offer significant financial support.
The company recently failed to pay the second BG of around Rs 350 crore for spectrum bought in the 2012 auction, which was due on November 1. This was followed by non-payment of over Rs 4,600 crore to BG related to the 2016 spectrum auction in September.
Vodafone Idea has raised Rs 24,000 crore through equity and now aims to raise another Rs 25,000 crore in debt and Rs 10,000 crore in BGs or letters of credit. These funds are critical for the company to continue its capital expenditure and compete with Airtel and Jio.
However, banks remain cautious, taking a wait-and-see approach due to Vodafone Idea’s strained financial position and requesting more corporate guarantees before extending further credit.
The BG issue came to the fore when the Department of Telecommunications (DoT) rolled back all BGs at the end of 2021, as there were no installments for 35 months. The September 2021 telecom reforms 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) rose 18 percent in Tuesday’s trade, while Bharti Airtel Ltd rose 1 percent.
Following the development, Vodafone Idea shares rose 18 percent to a high of Rs 8.09. Despite this, the stock has lost 7 percent in the last one month.
Vodafone Idea’s net debt (excluding leases, but not including accrued and accrued interest) rose to Rs 2.12 lakh crore in the second quarter from Rs 9,300 crore on payment of dues to vendors/banks and acquisition of spectrum. . VIL owes Rs 2.23 lakh crore to the government for pending spectrum (Rs 1.52 lakh crore) and AGR dues (Rs 70,300 crore).
In a note dated November 15, Nomura India said key takeaways from a post-results conference call with Vodafone Idea’s management indicated that VIL would primarily be BSNL’s due to the tariff hike announced in July 2024. has lost its customers but this trend has started to change since August. ahead
Vodafone Idea’s management expects the full impact of the tariff hike to be reflected in the next two quarters. VIL will begin 5G rollout in key geographies by Q4FY25, management suggested VIL targets to expand 4G population coverage to 120 crore by September 2025E.
VIL added 42,000 4G sites and closed 19,700 3G sites in Q2FY25. 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 DoT to waive the bank guarantee (BG) requirement of Rs 24,700 crore (from September 2024 to February 2025) for securitized spectrum tranches. We believe that the increase in Vi’s borrowings will also affect BG’s Subject to securing amnesty,” MOFSL said in an earlier note.
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