New Delhi, November 26, 2024: Shares of Vodafone Idea (Vi) surged by 18.08%, reaching Rs 8.23 on the BSE during early Tuesday trading, following the Union Cabinet’s in-principle approval to relieve the company from certain bank guarantee (BG) obligations. As of 2:53 PM, Vi shares were trading at Rs 7.59, up 8.74%.
The Cabinet’s decision to eliminate bank guarantee requirements for spectrum acquisitions dating back to 2022 offers significant relief to telecommunications firms, including Vodafone Idea. This move, supported by the Department of Telecommunications (DoT), will ease financial pressures on telecom companies, especially Vi, which had defaulted on two previous BG payments. The relief is part of the 2021 reforms that already removed the BG requirement for auctions from 2022 onwards.
Vi, which currently faces a hefty total bank guarantee obligation of Rs 24,700 crore, missed a BG payment of approximately Rs 350 crore on November 1, related to spectrum acquired in the 2012 auction. It had also defaulted on a larger payment of over Rs 4,600 crore for the 2016 spectrum auction earlier this year.
While the waiver was requested by Vi, it has wide implications for the telecom sector, particularly benefiting the company. Competitors like Bharti Airtel and Reliance Jio also have BG obligations from previous auctions, but their total liabilities are much smaller compared to Vi’s. Bharti Airtel is required to make a BG payment of Rs 2,200 crore by next September, while Jio faces an obligation of Rs 4,400 crore.
Vi had sought the waiver due to its financial constraints, hoping that this would allow banks to extend more credit facilities to the company. In response to the announcement, Bharti Airtel’s shares rose by 1.6%, trading at Rs 1,604.95, while Jio Financial Services saw a slight decline, down nearly 1% to Rs 320.10.
This development has provided a major boost to Vi’s financial outlook, with its stock reacting positively to the government’s decision.
