Shares of Vodafone Idea Ltd were trading in the red and 3% lower on Thursday, 13 February, after the Department of Telecommunications (DoT) asked Vodafone Idea (VIL) to provide a bank guarantee of Rs 6,090 crore, and the company has till 10 March to comply.
This bank guarantee is meant to cover a one-time payment shortfall for spectrum purchased after 2015.
To ease the financial strain on the company, the government reportedly offered VIL the option to pay Rs 5,493 crore in cash instead of offering the full bank guarantee. However, the telecom operator must follow the DoT’s instructions and choose between the two options.
Vodafone Idea CEO Akshaya Moondra told investors during the company’s Q3 results call on 12 February that the company was in discussions with the Department of Technology (DoT) to determine the BG amount owed for a one-time partial payment deficit (in airwaves) acquired in the 2015 deal.
In a December statement, Vodafone Idea reaffirmed that, of the five auctions indicated, bank guarantees would not be needed for the 2012, 2014, 2016, and 2021 bids. However, since the prorated value of the spectrum used exceeds the net present value of all payments made, there is still a one-time partial shortfall for the 2015 auction. “We are in discussion with the DoT to determine the final amount of this partial shortfall for the 2015 auction,” the telco had said in its December statement.
According to the telecom reform package of 2021, no bank guarantees (BGs) were required for spectrum auctions held after the reforms because the industry was considered mature and the requirement for BGs had been discontinued.
In December of last year, the DoT further benefited the telecom industry by eliminating the requirement for a bank guarantee for spectrum auctions held prior to the reforms. This was done for auctions held in 2012, 2014, 2015, 2016, and 2021, provided that the prorated value of spectrum used, from the date of allocation to three months after the next installment’s due date, was less than the telecom operator’s net present value (NPV) of payments.
Before this change was made, Vodafone Idea had to provide bank guarantees for each spectrum instalment, which came to over Rs 24,800 crore, 13 months before the auctions were scheduled to take place.
At 12:55 pm, the shares of Vodafone Idea were trading 4.88% higher at Rs 8.80 on NSE.
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