DoT likely to issue letters to telcos with bank guarantee waiver terms soon

Last month, the Union Cabinet approved a proposal to waive the BG requirement for securitising deferred spectrum instalments from auctions conducted since 2012.

The department of telecommunications (DoT) is expected to issue letters detailing the provisions of the bank guarantee (BG) waiver to telecom operators within the next 7–10 days, sources familiar with the matter said.

Last month, the Union Cabinet approved a proposal to waive the BG requirement for securitising deferred spectrum instalments from auctions conducted since 2012.

“Telcos have held two to three meetings with the DoT since the Cabinet approved the BG waiver. The department is now finalising the details and plans to issue letters to operators within this month,” a senior executive from a leading telecom company told Moneycontrol.

The move is a significant relief for financially stressed Vodafone Idea (Vi), expected to benefit from around Rs 24,700 crore of the Rs 33,000-crore sector-wide relief. The BG waiver will enable lenders to extend additional credit to the struggling telco, which urgently needs funds to expand its 4G network and accelerate its 5G rollout to compete with Reliance Jio and Bharti Airtel.

Under the original BG waiver plan, telcos were required to pay an additional three months' instalment along with the annual payment, effectively covering 15 months. This amount would act as security for the following year's payment.

However, revised terms allow telcos to provide a BG for three months only when the next payment is due, removing the need for an upfront advance.

The government sources said that the waiver will not have an immediate financial impact on the government. The new terms will apply to spectrum auctions held in 2012, 2014, 2015, 2016, and 2021, contingent upon the telcos agreeing to the conditions.

Vodafone Idea, whose revenue market share dropped to an all-time low of 14.5 percent in the second quarter, has been losing ground across all 22 telecom circles, and has cited its financial troubles to seek the waiver. This move, the telco expects, would give banks more headroom for extending credit to the company.

The BG waiver is expected to help Vodafone Idea push its bid to secure bank loans of approximately Rs 35,000 crore during the current fiscal. However, the banks are also seeking clarity on the Adjusted Gross Revenue (AGR) issues.

“The government has acknowledged the AGR issue and assured telcos support during stakeholders and one-on-one meetings. The Department of Telecommunications is currently discussing possible support measures with the Finance Ministry on this front. Any new announcement, in the form of a reform, could come next year,” another executive said on the condition of anonymity.

Vodafone Idea raised Rs 24,000 crore through equity earlier this year and is now seeking an additional Rs 25,000 crore in loans and another Rs 10,000 crore in bank guarantees or letters of credit. This funding is essential for continuing its capital expenditure plans to compete with Airtel and Jio.

The telco has outlined a capex plan of Rs 50,000 to Rs 55,000 crore over three years, executed through debt fundraising and equity raises.

Vodafone Idea CEO Akshaya Moondra, on November 14, during an earnings call, informed analysts that lenders are also looking at what is happening on the AGR matter. He, however, mentioned that any reduction in the AGR liability was not a part of its business plan submitted to the lenders, based on which its techno-economic evaluation (TEV) was done by an external agency and submitted to the banks.

“I, along with my promoters, are engaged with the bank, and we should be able to close once some clarity emerges on what is happening on the AGR front. Till this curative petition was dismissed, things were progressing as we had expected. I think it will probably take a while to get some clarity… I think they (banks) are also seeing that since the engagement is on what is happening in that direction,” he said.

Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.