DoT May Return BGs Worth Rs 22,000 Crore to Vodafone Idea, Airtel

The Department of Telecommunications might return bank guarantees worth Rs 14,000 crore to Vodafone Idea and Rs 8,000 crore to Bharti Airtel. A source said that the DoT can do so if they opt for a four-year moratorium on payment of spectrum dues.

Vodafone Idea, Airtel to Get a Financial Pick-me-up

The source told ET, “BGs in deferred annual instalment against spectrum bought in earlier auction will be returned to telcos opting for moratorium".

"Vi stands to get about Rs 14,000 crore and Airtel about Rs 8,000 crore", they added.

This move will help Vodafone Idea the most. In a slew of good developments since the Cabinet approved the telecom relief package, this comes to reduce Vodafone Idea’s non-fund exposure to banks. Till now, banks have hesitated to furnish fresh BGs to Vi; given its financial position, that came as little surprise. According to some experts, this will also see banks be a little more lenient with Voda-Idea.

On Thursday, Bharti Chairman Sunil Mittal had said that the telco will go for the moratorium. This makes Airtel the first to say they would go for it; Vodafone Idea, though, will also go for the moratorium, by the looks of things.

A lender said that a large part of their exposure to Vi consisted of BGs. Given that the DoT might return them, "it gets cancelled and our exposure towards Vodafone Idea will drop significantly", they said.

The lender further added that re-rating Vi could also lead to refinancing of existing loans at lower rates. They added, "in all likelihood, we will be able to offer them lower rates and rework loan covenants depending on how the cash flow situation improves". Incidentally, Vodafone Idea represents a total exposure of little over Rs 35,000 for the banks. The funded exposure makes up Rs 13,800 crore; the remaining is non-funded.

Vodafone Idea had a gross debt of Rs 1.9 lakh crore at June end – mostly in obligations to the government towards deferred spectrum charges and adjusted gross revenues (AGR)-related dues – while its cash and cash equivalents are only Rs 920 crore.

Bank Guarantees - A Touchy Matter

BGs have been a sensitive subject in all corridors of the industry. However, in a reprieve, the government will cut BGs by as much as 80% against dues such as license fees. The government further added that telcos need not submit BGs for securing instalments in upcoming auctions.

The reduction in BGs came as a long list of relief efforts, announced as part of the telecom relief package. Apart from giving a 4-year moratorium on AGR and spectrum dues, the Cabinet also approved redefining AGR altogether. Also, the government will ditch spectrum usage charges altogether from next spectrum sale onwards.