The Department of Telecommunications (DoT) is likely to inform the Supreme Court soon that the government will return bank guarantees (BG) of telcos even for matters which are currently sub judice. Also, BGs, furnished by the telcos to cover for spectrum payments, which have been deferred for four years under the telecom relief package, will be returned, the Economic Times mentioned in a report.
According to the sources mentioned above, the government will protect its deferment dues by asking the companies to furnish the BGs a year before the concerned dues are up for payment.
Worth mentioning here is that the DoT holds BGs worth Rs 35,000 crore. Out of this, guarantees of around Rs 13,000 crore are related to sub judice matters, the business daily mentioned citing industry estimates. The one-time spectrum charge (OTSC) dues case is a high-profile example of BGs being furnished for matters that are currently under litigation.
It may be noted that as part of the telecom relief package announced in September, the government had allowed telcos to defer spectrum as well as adjusted gross revenue (AGR) dues by four years, to be repaid with interest. It had also cut BG requirements against statutory dues such as licensee fees by 80%, while adding that the financial instrument won’t be required anymore to secure instalments of payments in upcoming auctions.
The mechanism that DoT adopts to inform the court is unclear as yet, but lawyers say it should be in the form of an affidavit.
“…the DoT is best placed to make and communicate this assessment to the apex court, which can take the form of an affidavit as has been the precedent in some other cases,” the financial publication quoted Vikrant Kumar, partner at law firm Saraf & Partners as saying.
Vodafone Idea will be the biggest beneficiary of the move as the company has about Rs 10,000 crore locked away in bank guarantees in matters which are currently sub-judice. The same is about Rs 3,000 crore for Bharti Airtel.
Vodafone Idea’s managing director Ravinder Takkar had recently said that the company had approximately Rs 23,000-25,000 crore of BGs sitting with the government at any given point in time.
Return of BGs will add to the banks’ capital pool, allowing a cash-strapped telco 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 stem its subscriber losses.
“This is an extremely opportune move by the DoT, this will both free up telco’s existing (non-fund based) financing limits and allow greater allocation to operations as also give room for lenders to re-evaluate fund-based financing limits,” said Kumar.
According to officials, while the DoT had commenced the process of returning BGs worth Rs 14,000 crore to Vodafone Idea and Rs 8,000 crore to Bharti Airtel, fate of BGs of Vodafone Idea valued at Rs 10,000 crore was hanging in balance since it was regarding dues which are currently being contested in the courts.
Since the intent of the telecom relief package was to improve liquidity in the sector and give telcos funds to expand and invest in the business, the view is that even the ones which pertain to matters that are currently sub-judice should be returned, the publication mentioned citing the above-mentioned official.
