Vodafone Idea Faces Challenges in Renewing Bank Guarantees Amid Financial Crisis

BGs are typically submitted by telecom operators to the Department of Telecommunications (DoT). If statutory dues such as license fees or spectrum usage charges (SUCs) are not paid on time, the government can encash these BGs.

Highlights

  • Vodafone Idea (Vi), the debt-laden telecom operator, is facing difficulties in renewing some lapsed bank guarantees.
  • The company has sought additional time from the Indian government to replenish these BGs, underscoring the financial challenges it is currently facing.
  • Vi's weak financial position has made it unable to issue replacement BGs without providing a 100% cash margin to the banks.

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Vodafone Idea (Vi), the debt-laden telecom operator, is facing difficulties in renewing some lapsed bank guarantees (BGs), including amounts as low as Rs 99 lakh. The company has sought additional time from the Indian government to replenish these BGs, underscoring the financial challenges it is currently facing. Vi is losing subscribers to its bigger rivals, and its weak financial position has made it unable to issue replacement BGs without providing a 100% cash margin to the banks, said an ET Telecom report.




In a letter dated July 7 to the Controller General of Communication Accounts (CGCA-revenue wing) in the Department of Telecommunications (DoT), Vi expressed its inability to renew certain BGs, citing its weak financial position. The telco also mentioned that it has been unable to renew undisclosed sums of BGs issued by Kotak Mahindra Bank due to its ongoing financial constraints. Presently, Kotak's BG exposure to Vi stands at approximately Rs 10 crore.

Read More - Vi Smartphone Program: Recharge Discount Worth Rs 2400 on Offer

As per the report, responding to queries, a Vi spokeswoman stated that the company is renewing all BGs as and when required, and it has already renewed BGs worth over Rs 4,000 crore in the current financial year. However, the situation indicates that banks are reluctant to lend to Vi, even for small BG amounts, due to concerns about the telco's credit standing.

BGs are typically submitted by telecom operators to the Department of Telecommunications (DoT). If statutory dues such as license fees or spectrum usage charges (SUCs) are not paid on time, the government can encash these BGs. The fact that Vi is struggling to obtain replacements for lapsed BGs reflects the severity of its financial crisis, with banks exercising extreme caution in lending to the company.

Vi needs to raise funds in order to get its business back on track towards a profitable future. Currently, the management has maintained that they are in talks with private equity players to raise funds, but nothing has developed to that end so far.

Reported By

Tanuja is a passionate technology and telecom buff who has been following the telecom industry for several years now.

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