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In a clear signal of its continued supportive stance towards the telecom sector, the government has finally approved a waiver for requirement of bank guarantees for spectrum acquired in previous auctions.
According to Citi, this is a major relief for Vodafone Idea, which was unable to furnish the required bank guarantees. This inability had been a major hurdle in the company’s efforts to secure debt funding from banks.
Citi also noted that the development has positive implications for Indus Towers. The brokerage has maintained a ‘Positive Catalyst Watch’ on Indus Towers, pointing out that the market has largely overlooked the over 6% dividend yield it offers. Improved visibility on this front adds to the stock’s appeal.
The foreign brokerage said that any progress on Vodafone Idea’s debt funding will be a key monitorable going forward and an added trigger for both stocks.
The DoT has done away with the financial bank guarantees for the Spectrum acquired through auctions held in 2012, 2014, 2015, 2016 and 2021. This, however, is subject to certain terms and conditions.
Prior to the announcement, Vodafone Idea was supposed to submit bank guarantees worth nearly ₹24,800 crore against each spectrum instalment, 13 months prior to the instalment due for the above auctions.
“As per our understanding of the terms and conditions, out of the five auctions mentioned above, no bank guarantees will be required to be provided by Vodafone Idea Ltd. for the 2012, 2014, 2016 and 2021 auctions,” the company said in a filing.
However, there is a one-time shortfall only for the 2015 auction, where the company is in discussions to determine the final amount of this partial shortfall.
“This step of bank guarantee waiver is a clear indication of the government’s continued support to the telecom industry and will ensure the exposure of the banking system is utilised by telecom operators towards further proliferation of 4G and 5G networks in India,” Vodafone Idea said.
In a clarification to the exchanges on November 26, Vodafone Idea had clarified to reports about the Union Cabinet approving a proposal to waive bank guarantees required to be provided by telecom operators for spectrum purchased in auctions conducted by the DoT up to 2022. It said that it had not received any communication from the DoT in this regard so far, but has made detail representations to the DoT for the removal of bank guarantees, which is also an industry ask.
Shares of Vodafone Idea settled 3.75% higher on Monday at ₹7.75. The stock has fallen nearly 55% in the last one year.
