Vodafone Idea Makes Spectrum Surrender Demand to Relieve Bank Guarantee Pressure

Vodafone Idea (Vi), the telecommunications operator created by the merger of Vodafone India and Idea Cellular in 2018, is seeking to surrender certain spectrum it had bought before 2021 to bring down its massive bank guarantee (BG) liability. This is to address a pile of bank guarantees worth ₹6,091 crore tied to the March 2015 spectrum auction, which the company has formally asked the Department of Telecommunications (DoT) to allow.

Asserting that it cannot currently provide the BG mentioned above, or deposit a cash shortfall of ₹5,493 crore also related to the purchase of spectrum in 2015 because it is facing severe financial headwinds, Vi has written to the DoT. This BG is the company's only outstanding securitisation obligation from the 2015 auction.

The Vi’s Proposal

Vi's proposal, to the DoT secretary Neeraj Mittal in a letter dated March 10, said that the surrender of the spectrum pre-2021 could reduce the mandatory the spectrum for right of use — or BG — to ₹2,900 crore. Additionally, Vi has suggested other mechanisms to address the securitisation demand. These include adjusting the ₹6,091 crore demand against additional amounts paid by it in earlier spectrum auctions. The attack focused on overpayment of ₹9,900 crore from the 2016 auction and ₹8,800 crore from the auctions of 2012 and 2014 together.

Vi has also pointed to other financial instruments already with the DoT. These include ₹5,800 crore in bank guarantees issued for different regulatory compliances, as well as a ₹2,450 crore cash deposit done during an internal restructuring within Vodafone Group in December 2015. Overall, Vi asserts that the DoT has securitisation options worth ₹26,950 crore, which will include these BGs, the cash deposit, as well as past excess payments. The company has requested the DoT to consider these options favourably to avoid any coercive measures.

Vi has estimated that upon surrendering the spectrum to the government, it would withdraw ₹4,800 crore worth of spectrum post-2021, of which, ₹3,200 crore of that would relate to the 2015 auction. According to reports, Vi has been engaged in discussions with the DoT regarding this potential surrender of spectrum.

In another development, Vi Chief Executive Officer — Akshaya Moondra — has sought to the Department of Telecom (DoT) that the company's dues be converted into equity as a matter of priority through a letter dated March 11. These dues are for spectrum acquired in the auctions of 2012, 2014, 2015 and 2016, and also include adjusted gross revenue (AGR) and spectrum payments.

Vi is not struggling with its financial burden—its adjusted gross revenue (AGR) dues amount to ₹70,000 crore and it has cash reserves of just ₹12,090 crore as of December quarter. JM Financial also estimates that the company will have large regulatory payouts due in March 2026 of ₹29,100 crore, while annual payments are likely to shoot up to around ₹43,000 crore until FY31.

It is particularly interesting that the government gave at least some sort of relief to the telecom sector recently in August by waiving almost ₹33,000 crore as bank guarantees on the earlier spectrum auctions for all three private telcos, with Vi being the maximum beneficiary, getting relief of ₹24,800 crore.

Vi's petition to return spectrum and use historical overpayments and current securities speaks volumes about the financial pressure it is under and its proactivity to fulfil the regulatory requirements. Vi's financial trajectory in the coming period will largely depend on the DoT's response on these proposals.

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