Bank Guarantees Waiver For Telecom Companies Gets Government Approval

The Union Cabinet has decided to eliminate the requirement to provide large bank guarantees or BG for previous spectrum purchases, subject to certain conditions.

The waiver will be considered if telecom operators agree to pay an additional three months amount, along with annual payment, according to the cabinet decision.

The waiver terms are expected to apply to spectrum auctions of 2012, 2014, 2015, 2016 and 2021, a government official familiar with the development told NDTV Profit.

The move will largely benefit financially troubled Vodafone Idea Ltd. or Vi, which is estimated to be in need of BGs of over Rs 24,000 crore. Other major players including Bharti Airtel Ltd. and Reliance Jio Infocomm Ltd. would also expected to gain from the decision.

Explaining the decision, a person familiar with the matter said that approval of waiver has been given for deferred spectrum payments from 2012 onwards, which is essentially the extension of the relief given in 2021 as part of telecom reform.

In 2021, Cabinet eliminated the requirement for bank guarantees on future spectrum purchases.

According to the telecom reform of 2021, spectrum auction conducted in 2022 and 2024 have no obligation of submitting BGs. It had then allowed telecom companies to avail a four-year moratorium for spectrum and adjusted AGR dues.

The moratorium for spectrum auction dues for Vi is ending in October next year and BGs were supposed to be submitted 13 months before the next due payment. Vi was expected to submit BGs in tranches for different spectrum auctions pre-2022. However, the company did not submit any of the tranches scheduled for September and in ongoing month.

This has been the long standing demand of the telecom firms seeking waiver to reduce financial strain on the sector. The Cellular Operators Association of India had recently written to the Department of Telecom, requesting to do away the requirement of BGs retrospectively.

"This landmark decision will significantly help reduce the financial burden on the telecom operators in the country," said Lt. Gen. Dr. S.P. Kochhar, director general, COAI

The association is studying the details of the decision and will be able to have a more substantial view of the same, he said. "We feel positive that this decision will enhance cash flow, free up capital and enable capital investments in network expansion and technology upgrades, ensuring a stronger and robust rollout of telecom networks in the future.”

Vi recently raised Rs 24,000 crore through equity and intent to raise Rs 25,000 crore further, via loans and another Rs 10,000 crore in form of BGs, to continue its capex plans. However, banks have been cautious due to financial troubles telecom companies have been facing and ask for corporate guarantee to approve any loan credit.