Vodafone Idea (Vi) has begun initial talks with banks and international vendors to procure 4G and 5G network equipment using letters of credit (LCs) instead of full upfront payments, leveraging the government’s debt-to-equity conversion as support. The Indian government recently decided to convert Rs 36,950 crore of Vi’s outstanding spectrum auction dues into equity, under the provisions of the September 2021 telecom reforms package.
“Switching back to an LC-based payments model with global vendors is likely to give Vi far more cash-flow flexibility and allow it to accelerate its 4G network expansion and 5G rollouts via bigger volume equipment purchases,” ET Telecom reported, citing multiple people familiar with the discussions.
The telecom operator urgently needs to scale up its 4G services to close the network coverage gap with competitors Reliance Jio and Bharti Airtel and to curb the sharp decline in its user base.
Government Conversion of Dues into Equity
The report cited unnamed experts who suggest that banks, previously hesitant to lend due to Vi’s hefty statutory dues exceeding Rs 2 lakh crore, may now be more open to issuing letters of credit (LCs) following the government’s backing through the debt-to-equity conversion, which trimmed the telco’s spectrum liabilities by Rs 36,950 crore. LCs are considered safer and more favourable than direct loans, as they carry lower risk and help limit a sharp rise in banks’ credit exposure.
However, according to another report, some bankers said the government’s equity conversion may not provide sufficient assurance for them to extend credit to the troubled company.
A senior executive close to one of Vi’s global vendors reportedly cautioned that it remains to be seen “if network gear suppliers accept LCs from Vi, given that the telco still carries substantial debt in its books, even after the latest debt conversion.”
Until recently, Vi was acquiring 4G and 5G network equipment solely through full upfront payments, as it had been unable to secure the letters of credit (LCs) that global vendors typically require to fulfil initial purchase orders (POs).
Vi’s vendor payments for its ongoing 4G and 5G network equipment purchases are covered through the first quarter of FY26, supported by its current cash flows and overall cash position. The telco has raised Rs 26,000 crore through equity to finance its initial network gear needs for 4G expansion and 5G rollout.
Vendor Optimism
Nokia, Ericsson, and Samsung are reportedly optimistic about an improvement in Vi’s cash flows following the debt conversion, which could accelerate the telco’s efforts to raise additional debt, according to an executive familiar with the matter.
“Talks between Vi and its vendors for LC-based payments for upcoming POs are underway. Government support has been timely and should help Vi raise debt finance from banks, which is vital for making timely payments to vendors for the next round of purchase orders (POs) and ensuring uninterrupted 4G/5G gear supplies from July 2025 onwards,” the report quoted one of the sources as saying.
In September 2024, Vi announced plans to purchase USD 3.6 billion (approximately Rs 30,000 crore) worth of 4G and 5G equipment from Nokia, Ericsson, and Samsung over the next three years. The move is aimed at strengthening its 4G operations and launching 5G networks in major cities across its 17 priority circles.
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