The Indian government said that it will return all bank guarantees provided by the country’s private telecom service providers – which is especially welcome news for Vodafone Idea, which is going through a tough financial phase.
Vodafone Idea needs money to invest in its 4G network to compete with Reliance Jio and Airtel, and to also fund its 5G ambitions. The telco has been losing subscribers due to bad network quality, and has been asking the government to release its bank guarantees as it was finding it hard to raise funds.
Devusinh Chauhan, the minister of state for communications, informed the Indian parliament that the government will now return guarantees worth about Rs 15,000 crore ($1.9 billion) to Vodafone Idea.
India’s second ranked telco, Bharti Airtel, will also recover its guarantees worth about Rs 7,000-8,000 crore (roughly $1 billion).
The Department of Telecommunications (DoT) had earlier withheld bank guarantees submitted for payment for spectrum dues as guarantee against adjusted gross revenue (AGR) payments following the Indian Supreme Court’s AGR judgement.
As per a report by the Economic Times, the development will now allow Vodafone Idea to “tap more loans”.
“The government is planning to return bank guarantees to the telecom companies, in respect of BGs submitted to securitise the deferred payment spectrum instalments for the spectrum auction 2012, 2014, 2015 and 2016, for which moratorium has been opted by telecom service providers,” Chauhan said in reply to a lawmaker’s question.
Bank guarantees had long been a contentious issue between Indian telecom operators and the authorities. With the financial state of the entire industry, even banks were getting jittery about renewing guarantees for telcos, especially Vodafone Idea.
In view of the fact that telcos have opted for such a moratorium, no instalment is due necessitating security in the form of bank guarantees till 13 months before the next payable instalment post moratorium, he added.
In October 2021, the DoT decided to slash the performance and financial bank guarantee requirements of telecom operators by 80% as part of the relief package.
Through a licence amendment, the DoT allowed telcos to furnish a performance bank guarantee of up to Rs 44 crore ($5.95 million) for each service for the telecom licence compared to Rs 220 crore ($29.73 million) mandated under the previous rule.