The decision follows the 2021 Cabinet amendment, which had already removed the BG requirement of purchased spectrum going forward.
The Union Cabinet has approved waiver of Bank Guarantee (BG) for telecom operators on spectrum purchased before 2022, giving significant relief to companies like Vodafone Idea, which have BGs worth Rs. 24,700 crore is owed, according to sources. Indian telecom operators including Airtel and Vodafone Idea collectively spent Rs. 30,000 crores facing BG liabilities.
The decision follows the 2021 Cabinet amendment, which had already removed the BG requirement of purchased spectrum going forward. By extending this relief to old spectrum holdings, the government aims to relieve financial stress in the telecom sector and increase its stability.
Vodafone Idea has consistently highlighted its financial challenges, urging the government to waive the BG requirement to ease its spectrum payment burden. The company argued that such a waiver would facilitate additional lending from banks, which would offer critical financial support.
The company recently paid around Rs. Another BG of Rs 350 crore failed to pay, which was due on November 1. 2016 Spectrum Auction in September for BG Rs. This was in the wake of missed payments of over Rs 4,600 crore.
Vodafone Idea through equity raised Rs. 24,000 crore has been raised and now that loan is Rs. 25,000 crore and in BGs or letters of credit Rs. 10,000 crore is targeted. These funds are critical for the company to sustain its capital expenditure and compete with Airtel and Jio.
However, Vodafone Idea’s strained financial position has left banks cautious, taking a wait-and-see approach and requesting more corporate guarantees before extending more credit.
The BG issue came to the fore after the Department of Telecommunication (DoT) returned all BGs by the end of 2021, as there were no installments due 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.
Shares of Vodafone Idea rise
Shares of Vodafone Idea Ltd (VIL) rose 18 percent in Tuesday’s trade, with Bharti Airtel Ltd also up 1 percent.
Following the development, Vodafone Idea shares rose 18 percent to Rs. It reached a high of 8.09. Despite this, the stock is down 7 percent in the past one month.
Vodafone Idea’s net debt (excluding leases, but including accrued interest) on dues to vendors/banks and spectrum acquisitions in Q2 fell sequentially to Rs. 9,300 crore increased to Rs. 2.12 lakh crore has happened. For delayed spectrum (Rs 1.52 lakh crore) and AGR dues (Rs 70,300 crore), VIL paid the government Rs. There was a debt of 2.23 lakh crore.
In a November 15 note, Nomura India said key takeaways from a post-results conference call with Vodafone Idea Management suggest that VIL has lost its subscribers mainly to BSNL due to the tariff hike announced in July 2024 but the trend has started to reverse since August. Next
Vodafone Idea management expects to see the full impact of the tariff hike in the next two quarters. VIL to start 5G rollout in key geographies by Q4FY25 Management indicated that VIL aims to increase 4G population coverage to 120 crore by September 2025E.
VIL added 42,000 4G sites and closed 19,700 3G sites in Q2FY25. Capex for 2HFY25 at Rs. 8,000 crore and in the next three years Rs. 50,000-55,000 crore was guided.
“Vi has secured spectrum installments of Rs. 24,700 crore (to be submitted from September 2024 to February 2025) has written to the DoT to waive the Bank Guarantee (BG) requirement. We believe that Vi’s debt escalation is also contingent on obtaining a BG waiver,” MOFSLA said in an earlier note.
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