Vodafone Idea Fails To Renew Bank Guarantees Citing Fund Crunch, Seeks More Time: Report

The debt-ridden telco has been navigating a delicate financial situation while continuously losing subscribers to two of it's biggest competitors

Telecom operator Vodafone Idea (Vi) is finding it hard to renew some lapsed bank guarantees (BGs), some even as low as Rs 99 lakh, and has requested the government for some more time to replenish them. The debt-ridden telco has been navigating a delicate financial situation while continuously losing subscribers to its biggest competitors, it mentioned in a letter dated July 7, addressed to the Controller General of Communication Accounts (CGCA-revenue wing) in the Department of Telecommunications (DoT).

Vi also noted that it has failed to renew additional BGs, of undisclosed amounts, issued by Kotak Mahindra Bank due to its ongoing financial problems, as per a report by the Economic Times (ET). Kotak’s BG exposure to Vi stands at about Rs 10 crore according to the latest developments.

"Due to our weak financial position, we are not in a position to issue replacement BGs of Rs 99 lakh and Rs 32.49 crore as this requires 100 percent cash margin to be provided to the banks," the telco said in the letter. 

Responding to queries about the letter, a Vi spokeswoman later said, “All our BGs are being renewed as and when required. We have already renewed BGs worth over Rs 4,000 crore in this financial year itself.” BGs are submitted by telecom operators to DoT as insurance in case of failure of payment against statutory dues like spectrum usage charges (SUCs), licence fees, or any other charges. The government can encash these BGs to recover its dues. 

Vi claimed that Kotak’s inability to renew the BGs is due to their regulatory constraints and doesn't reflect on the telco’s credit standing. But as per banking experts, “The decision to ask for a 100 percent cash margin reflects that banks are extremely averse to lending to Vi, even if the BG sums are tiny.”

Meanwhile, Vi has requested DoT to retain the money encashed by its BGs until the telco issues replacement instruments to the government. “In view of your instructions to replenish the BGs that were encashed, we request your good office to kindly retain the cash received against such invocations as a cash deposit as is permitted under Clause 21.3 (of the Unified Licence Agreement) until we are in a position to provide replacement of the mentioned BGs,” the company said. 

As per the mentioned clause, a licensee must extend the validity of its BGs at least a month before expiry without any demand or notice from the licensor (DoT) on a year-to-year basis. Any failure to do so results in a violation of the terms and conditions and entitles the licensor to encash the BGs and convert them into cash security without any reference to the other party.

As per company data, Vi ended the financial year of 2022-23 (FY23) with a net debt of Rs 2.09 lakh crore and a cash balance of Rs 230 crore. Its debt from banks and financial institutions stood at Rs 11,390 crore, out of which debt payable by March 31, 2024 is Rs 8,380.4 crore. For the first quarter of the current fiscal year, Vi has paid only 10 per cent of its licence fees and SUC dues to the government.