These would be returned in addition to BGs provided by telecommunications companies to cover frequency payments that have been deferred for four years under the relief package, government officials said. They added that the government will protect its deferral fees by asking companies to deliver the BGs one year before the dues in question are to be paid.
The story so far
- Between Vi and Airtel, DoT has some Rs 35K cr in BGs
- Airtel’s Rs 3,000 cr and Vi’s Rs 10,000 cr value of BGs are for contingent which was under judice
- DoT may need to file a statement in SC regarding the return of BGs from sub-court cases
- A large proportion of BGs have to cover OTSC fees, which are in different courts
- Returns on BGs will increase the banks’ capital pool, giving telecommunications companies such as Vi access to more loans
We to be the biggest recipient
Between Vodafone Idea and Bharti Airtel, DoT holds around Rs 35,000 crs 35,000 in BGs, of which guarantees of Rs 13,000 crs are related to sub-court cases, according to industry estimates. The case of one-off fees (OTSC) is a high-profile example of BGs being made available for cases that are currently under trial. As part of the telecom assistance package announced in September, the government had allowed telecommunications companies to defer frequencies as well as adjusted gross revenue (AGR) by four years to be repaid with interest. It had also cut BG requirements against statutory fees such as licensee fees by 80%, while adding that the financial instrument will no longer be needed to secure rates of payments in upcoming auctions.
The mechanism adopted by the DoT to inform the court is still unclear, but lawyers say it should be in the form of a statement.
“… DoT is best placed to make and communicate this assessment to the apex court, which may take the form of a statement as it has been a precedent in some other cases,” said Vikrant Kumar, partner at law firm Saraf & Partners.
The biggest benefit of the move would be Vodafone Idea, as the company has around Rs 10,000 crore locked inside bank guarantees in cases that are currently under trial. The same is about 3,000 crore Rs for Bharti Airtel.
Vodafone Idea’s CEO Ravinder Takkar had recently said that the company had approximately 23,000-25,000 crore Rs of BGs sitting with the government at any given time.
Repayment of BGs will add to the banks’ capital pool, giving a money-laden telecommunications company 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 curb its subscriber losses . .
“This is an extremely opportune move by DoT, this will both free up telco’s existing (non-fund-based) funding limits and allow greater allocation to operations, which also leaves room for lenders to reassess fund-based funding limits,” said Kumar of Saraf & Partners.
According to officials, while the DoT had begun the process of returning BGs worth Rs 14,000 to Vodafone Idea and Rs 8,000 to Bharti Airtel, the fate of BGs from Vodafone Idea to Rs 10,000. is currently being challenged in the courts.
Another official said the DoT had sought legal advice on what is the proper procedure to be followed for the return of BGs, particularly those related to issues currently in court.
Since the purpose of the telecoms assistance package was to improve liquidity in the sector and provide telecommunications companies with means to expand and invest in the business, the view is that even those relating to cases currently under trial should be returned, the first official explained.
Takkar recently told analysts that DoT was working on returning BGs.
“… We’ve been giving BGs for so long for so many spectrums, so it’s a monumental task to unite and register them properly. I’m sure the process will start very soon,” he added.