Telcos set for major relief as cabinet waives BGs for spectrum

The proposal plan to exempt telecom operators from providing bank guarantees (BG) for spectrum purchases through 2022 has reportedly been approved by the Cabinet. With a total debt of over Rs 30,000 crore in BGs to the government, major telecom companies are anticipated to receive substantial relief from this judgement.  

The need that telcos submit BGs for spectrum purchased after 2022 was eliminated by the government. The reform package unveiled in September 2021 included this relief measure. The telcos were able to increase their cash flow as a result. In order to avoid having to submit BGs for spectrum purchased after 2022, Vodafone Idea Limited (VIL) requested that the government complete the BGs for spectrum purchased prior to that year.

Prior to this, Bharti Airtel stated its support for a waiver of bank guarantees and urged the Department of Telecommunications (DoT) to assure fair treatment for all telecom businesses, regardless of their financial situation.

Vi to gain most from cabinet approval

The troubled telecom company Vodafone Idea, which owes the government more than Rs 20,000 crore, is anticipated to gain from the most recent ruling. 

Vodafone Idea has drawn attention to its persistent financial issues and is requesting government support to do away with the need for bank guarantees (BGs) to protect its spectrum payments. The business thinks that a waiver of this kind would allow banks to give them more credit, which would help them financially.

In a recent investor call, Akshaya Moondra, the CEO of Vodafone Idea, stated, "One of our arguments to the government is that if it (bank guarantees) has been eliminated for future auctions, then why do we really need to retain it for previous auctions? The same reasoning should be used to eliminate the bank guarantees, thus it should be done away with.

The way it actually affects us is that we are looking for a certain facility from the banks, and if we choose to apply for the bank guarantee facility, it will limit our capacity to obtain debt financing. Thus, it is evident that banks themselves are not very inclined to provide bank guarantees.

Furthermore, there is a payment schedule and significant sums have been paid against previous auctions, so it is not as though nothing has been paid against that spectrum. Considering all of this, we have asked the government for a bank guarantee, and we think the justification is clear. The industry has also sought this. The request isn't just for VIL. The industry as a whole has called for the elimination of bank guarantees. That brings us to the current state of the bank guarantee issue."

The Cellular Operators Association of India (COAI), which represents private telecom carriers, also contacted the DoT in August to request that the BG criteria be removed for auctions conducted prior to 2022.