Vodafone Idea says bank guarantee waiver to boost investments

Vodafone Idea Ltd shares jumped 7% on Monday after the government waived the requirement of bank guarantee to be submitted for spectrum auctions held prior to reform package of 2021.

This step of bank guarantee waiver is a clear indication of the government’s continued support to the telecom industry, the Aditya Birla Group and Vodafone Group-owned telecom operator says.

It will ensure that the exposure of the banking system is utilised by telecom operators towards further proliferation of 4G and 5G networks in India, the company says.

Reacting to the development, shares of Vodafone rose 7% in intraday trade to ₹8 on the BSE, taking the company’s market cap to around ₹54,000 crore. In comparison, broader benchmark indices, the BSE Sensex and the Nifty 50, were down 0.6% each.

As per the telecom reform package of 2021, no bank guarantee (BG) was required to be provided for the spectrum auction held post reform package as the industry had matured and past practice of BG was no longer required.

Recently, the Government of India’s Department of Telecommunication further extended its support to the telecom industry by dispensing with the requirement of bank guarantee to be submitted for spectrum auctions held prior to reform package i.e. for spectrum auctions of 2012, 2014, 2015, 2016 and 2021, provided the pro-rated value of spectrum used from the date of allocation till the end of three months after the due date of payment of next instalment is less than the value of payment made by the telecom operator on an NPV basis.

Prior to this reform, bank guarantees aggregating to around ₹24,800 crore were required to be provided by Vodafone Idea against each spectrum instalment, 13 months prior to the instalment falling due for the above auctions.

“As per our understanding of the terms and conditions, out of all the 5 auctions mentioned above, no BGs will be required to be provided by VIL for the 2012, 2014, 2016 and 2021 auctions. However, there would be a one-time partial shortfall only for the 2015 auction, where the NPV of all payments made would be less than the pro-rated value of spectrum used. We are in discussion with the DoT to determine the final amount of this partial shortfall for the 2015 auction,” the telecom operator says.

Vodafone Idea holds a large spectrum portfolio including mid band 5G spectrum in 17 circles and mmWave spectrum in 16 circles.