India's DoT discards telcos’ Bank Guarantee

India’s government informed telecom operators that any potential spectrum auctions for telecom service providers (TSPs) are not required to submit a financial bank guarantee (FBG) to estimate annual spectrum installment.

The Department of Telecommunications (DoT) announced it will shift the suitability terms for participation in the upcoming sale to facilitate the bidder’s financial capabilities.

“For spectrum auctions to be held in the future, the requirement for the successful bidder to submit an FBG of an amount equal to one annual installment to scrutinize the installment; and to submit Performance Bank Guarantee for rollout obligation, etc. has been dispensed with,” the notice stated.

To that accordance, India’s government will be altering the suitability of the conditions to facilitate participation in the upcoming sale. In addition, the governmental notice will not demand cashing of bank guarantees (BG) from homegrown telcos Vodafone Idea and Bharti Airtel until the upcoming hearing on October 26.

BGs is a type of financial backstop offered by a lending institution (in this case, banks) and means that any lender will confirm that liabilities of the debtor will be met and fulfilled. This means that in case the debtor neglects to settle its debt, the bank will take over to cover it.  

Earlier this month, India’s DoT issued a license amendment note revealing a staggering – yet logical – decision to curtail performance and financial bank guarantee requirements of telcos by 80 percent.

A move that could potentially exhilarate a suffering telecom sector, with some of the leading company’s enduring a devastating debt, such as Vodafone Idea and Bharti Airtel.

Under the amended term’s rules, telecom operators will need to deliver a performance bank guarantee reaching up to around $0.60 for every service for the telecom license, in comparison to the previously mandated $2.90 of the old term.

In parallel, the operators will also need to demonstrate a financial bank guarantee reaching up to $0.12 for each service for the telecom license, contrary to the $0.60 previous requirement.

The recently initiated rule will be valid in cases where BGs have been already set to accommodate any court order or subject to any lawful action, the license amendment stated.

As for carriers who are currently undergoing a liquidation process, the rules will not be applicable.

The DoT’s recent tactic will unlock any monetary accounts the country’s telcos are upholding with banks to further furnish their BGs.