Vodafone-Idea's (Vi) plans to upgrade its network equipment may reportedly face delays, as banks have sought extra collateral from the telecom company in order to process its request for more letters of credit (LCs) to be issued to suppliers like Nokia, Ericsson, and Samsung. Banks are especially cautious about taking on new exposure after the Supreme Court rejected Vi's curative petition last month, which sought a review of a 2019 ruling on how the adjusted gross revenue (AGR) payable by telecom companies should be calculated, according to an ET report.
Also Read: Any Relief on Bank Guarantees Will Benefit Entire Sector, Says Minister: Report
Collateral Demands from Banks
Banks have reportedly informed Vi that any further requests for LCs must be supported by sufficient collateral. This new hurdle could delay Vi's investment plans and potentially prevent the company from placing new equipment orders. However, Vi has stated that it has enough funds to carry out its FY25 capex plans.
"From the banks' perspective, any new exposure to Vi has to now be backed with sufficient collateral. Of course, the company has existing LC facilities which can be used but any new request will have to be backed with collateral. Banks are a bit cautious with any kind of exposure from Vi," the report quoted a person familiar with the discussions.
Also Read: PNB Turns Down Vodafone Idea’s Request for Fresh Financing: Report
SBI, Lead Lender in Consortium
State Bank of India (SBI) is reportedly the lead lender in the consortium to Vi. As of March 31, the company had over Rs 2 lakh crore in outstanding dues to the government, including Rs 1.33 lakh crore in deferred spectrum payments and Rs 70,320 crore in AGR liabilities. With the Supreme Court denying relief on the AGR dues, bankers are now seeking a clear plan from the company on how it intends to address these obligations, the report further added.
In response to a query, the report stated that Vi said the company currently has enough cash to execute its capital expenditure plans for the rest of the fiscal year and that the company has already started receiving equipment from suppliers.
Sufficient Funds for FY25 Capex Plans
"We have already set up LC limits with multiple banking partners, aligned with our current network equipment supply requirements on mutually agreed terms. Supplies have commenced from our partners under these supply agreements as per our plans," a company spokesperson, according to the report, said. "Further, as mentioned in our recent earnings call, we have a cash balance of Rs 13,620 crore as of September-end, which is more than sufficient to execute our balance capex plan of Rs 8,000 crore for the second half of fiscal 2025."
Also Read: Banks Hesitant to Lend to Vodafone Idea Following Supreme Court Ruling: Report
Vi's Investments in 4G and 5G Expansion
In September, Vi signed a nearly Rs 13,500-crore agreement with Finland's Nokia to purchase equipment for its 4G network expansion and 5G rollout over the next three years. This deal is part of Vi's broader plan to invest USD 3.6 billion (around Rs 30,000 crore) in 4G and 5G gear from Nokia, Ericsson, and Samsung. The investment aims to enhance its 4G operations and launch 5G networks in key cities across 17 priority circles.
Reportedly, Banks are being cautious as the large outstanding dues to the government could significantly impact Vi's financials. Earlier, PNB turned down Vi's request for fresh financing. Power Finance Corp (PFC) and its subsidiary, Rural Electrification Corp (REC), also reportedly rejected Vodafone Idea's long-term loan proposal, citing mismatches with internal underwriting guidelines and concerns about the collateral offered.
Also Read: Vodafone Idea Faces Setback as PFC and REC Decline Loan Request: Report
"Even LCs are an exposure for banks, though short term. Normally, for large capital expenditures, banks give LCs maturing in one to three years depending on the payments. Ultimately banks have to be careful that any LC issued does not devolve on them, which is why there is some caution even on these short-term instruments," the report quoted a second person aware of the details.
Government's Proposal to Waive Bank Guarantee
The government is reviewing a proposal to waive the bank guarantee requirement for securitising deferred spectrum instalments. However, the waiver's terms are not particularly favourable for Vi, as it would require the company to pay an extra three months' worth of instalments as part of the annual spectrum payments. Vi is in talks with the Department of Telecommunications (DoT) to ease the waiver conditions, but no decision has been made yet, the report added.
A delay in securing new LC facilities could hinder the company's ability to compete with stronger competitors Reliance Jio and Airtel.
