The Department of Telecommunications (DoT) is likely to tell the Supreme Court soon that the government will return bank guarantees (BG) of telcos even for matters which are currently sub judice.
These would be returned in addition to BGs which the telcos had furnished to cover for spectrum payments, which have been deferred for four years under the relief package, government officials said. They added that the government will protect its deferment dues by asking the companies to furnish the BGs a year before the concerned dues are up for payment.
The story so far
- Between Vi & , DoT holds some Rs 35K cr in BGs
- Airtel’s Rs3,000 cr and Vi’s Rs 10,000 cr worth of BGs are for dues which was sub judice
- DoT may have to file affidavit in SC regarding return of BGs of sub judice matters
- Large portion of BGs are to cover for OTSC dues, which are in various courts
- Return of BGs will increase capital pool of banks, allowing telcos like Vi to access more loans
Vi to be Biggest Beneficiary
Between and Bharti Airtel, the DoT holds some Rs35,000 crore in BGs, out of which guarantees of around Rs 13,000 crore are related to sub judice matters, as per industry estimates. The one-time spectrum charge (OTSC) dues case is a high-profile example of BGs being furnished for matters that are currently under litigation.
The government as part of the telecom relief package announced in September had allowed telcos to defer spectrum as well as adjusted gross revenue (AGR) dues by four years, to be repaid with interest. It had also cut BG requirements against statutory dues such as licensee fees by 80%, while adding that the financial instrument won’t be required anymore to secure instalments of payments in upcoming auctions.
The mechanism that DoT adopts to inform the court is unclear as yet, but lawyers say it should be in the form of an affidavit.
“…the DoT is best placed to make and communicate this assessment to the apex court, which can take the form of an affidavit as has been the precedent in some other cases,” said Vikrant Kumar, partner at law firm Saraf & Partners.
The biggest beneficiary of the move would be Vodafone Idea as the company has about Rs 10,000 crore locked away in bank guarantees in matters which are currently sub-judice. The same is about Rs3,000 crore for Bharti Airtel.
Vodafone Idea’s managing director Ravinder Takkar had recently said that the company had approximately Rs 23,000-25,000 crore of BGs sitting with the government at any given point in time.
Return of BGs will add to the banks’ capital pool, allowing a cash-strapped telco like Vodafone Idea access to more loans as it seeks to invest in its 4G network to better compete with stronger rivals Reliance Jio and Bharti Airtel and stem its subscriber losses.
“This is an extremely opportune move by the DoT, this will both free up telco’s existing (non-fund based) financing limits and allow greater allocation to operations as also give room for lenders to re-evaluate fund-based financing limits,” said Kumar of Saraf & Partners.
According to officials, while the DoT had commenced the process of returning BGs worth Rs 14,000 crore to Vodafone Idea and Rs 8,000 crore to Bharti Airtel, fate of BGs of Vodafone Idea valued at Rs 10,000 crore was hanging in balance since it was regarding dues which are currently being contested in the courts.
A second official said that the DoT had sought legal opinion on what is the right procedure to be followed for return of BGs, especially those which are related to issues currently in court.
Since the intent of the telecom relief package was to improve liquidity in the sector and give telcos funds to expand and invest in the business, the view is that even the ones which pertain to matters that are currently sub-judice should be returned, the first official explained.
Takkar recently told analysts that the DoT was working on returning BGs.
“…We have been giving BGs for so long for so many spectrums so it is a monumental task to reconcile and record them appropriately. Am sure, the process will start very soon,” he added.