Financial Insights

DoT releases Bank Guarantees worth Rs 15,000 crores of Vodafone

The Department of Telecommunications (DoT) has refunded Bank Guarantees (BGs) worth Rs 15,000 crores to the debt-ridden Vodafone Idea.

The DoT filed an affidavit before the Supreme Court which said, ““Pursuant to the Cabinet decision and in view of the fact that VIL and BAL had opted for such moratorium on spectrum auction installments and no installment is due necessitating security in the form of financial bank guarantees till 13 months before the next payable installment post moratorium period, DoT has returned the existing bank guarantees. “

A Bank guarantee is an assurance on part of a Bank that if their client is unable to make payment for the goods/services in question, the Bank would step in the fulfill their clients obligations. This tool serves as a measure against credit risk and ensures that the Bank would show up behalf of it’s client.

Guarantees worth Rs 2,000 crore relating to License fees were refunded to Vi earlier, this 15,000 crore relates to guarantees relating to spectrum dues. Since Vi has taken a four year moratorium to pay these dues, such guarantees have been returned.

The return of such guarantees coupled with the fund infusion from its promoters, Vi now stands a fighting chance at the upcoming spectrum auctions. Moreover, Vi now has more funds in hand and will be able to raise more loans.

Airtel was also refunded Bank guarantees worth Rs 7,000 crores by the DoT. “…the government is returning the BGs and they will help ensure funds for telcos to reinvest in capex-heavy telecom networks and lead to growth in the sector and eventually to employment,” an official said.

Since the beginning of 2022, Vi has been on a constant decline and has fallen nearly 30%. Recently it began showing signs of recovery and currently trades around Rs 11.00 per share. Only time will tell if the company’s fresh funds and Q4 results could revitalize investors’ interest in the stock.

Highlight by Aman Agarwal.

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