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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.
