Kolkata: Vodafone Idea (Vi) has started initial discussions with banks and global vendors to buy 4G and 5G network gear against letters of credit (LCs) instead of making full upfront payments, backed by the government's debt conversion.
Switching back to an LC-based payments model with global vendors is likely to give Vi far more cash-flow flexibility and allow it to accelerate its 4G network expansion and 5G rollouts via bigger volume equipment purchases, multiple people aware of the discussions said.
The telco needs to speedily expand its 4G services as it aims to narrow the network coverage difference with rivals Reliance Jio and Bharti Airtel, and stem rapid user losses.
Experts say that banks, till now wary of lending owing to Vi's over ₹2 lakh crore statutory dues, may be amenable to issuing an LC after the government show of support through the debt conversion, which has reduced the telco's spectrum liabilities by ₹36,950 crore. LCs are relatively safer and more advantageous than extending direct loans as the risks are lower and such a strategy also won't sharply increase credit exposure.
A senior executive, close to one of Vi's global vendors, though, cautioned that it remains to be seen "if network gear suppliers accept LCs from Vi, given that the telco still carries substantial debt in its books, even after the latest debt conversion."
On Sunday, the government said it will convert its outstanding spectrum auction dues into equity shares worth ₹36,950 crore, increasing its stake in Vi to 49% from 22.6%. But the conversion accounts for under a fifth of Vi's pending government dues towards adjusted gross revenue (AGR) and spectrum payments.
ET reported in its April 2 edition that Vodafone Idea has said the government's decision to convert part of its dues into equity bolsters the prospects of bank credit to the tune of ₹25,000 crore as the company seeks to expand and upgrade its telecom network. However, bankers said the move may not be enough of an assurance for them to lend to the troubled company.
Until recently, Vi's 4G and 5G network equipment buys were happening purely on a full upfront payments basis, as Vi could not previously obtain LCs from banks required by global vendors to service its initial purchase orders (POs).
Vi's vendor payments for its ongoing 4G/5G network gear buys are covered till Q1FY26, based on its current cash flows and overall cash position. The telco has raised ₹26,000 crore via equity, to fund its initial network gear requirements for 4G expansion and 5G roll outs.
The likes of Nokia, Ericsson and Samsung, though, appear upbeat about a boost to Vi's cash flows after the debt conversion, which may hasten its debt-raise, said an executive aware of the matter.
"Talks between Vi and its vendors for LC-based payments for upcoming POs are underway. Government support has been timely and should help Vi raise debt finance from banks, which is vital for making timely payments to vendors for the next round of purchase orders (POs) and ensuring uninterrupted 4G/5G gear supplies from July 2025 onwards," one of the people cited earlier told ET.
At press time, ET's queries to Vi, Nokia, Ericsson and Samsung were unanswered.
"LCs help improve banks' liquidity position as immediate cash outlay is not needed. So, while discussing with telcos, this approach seems a good way forward for all," Vinish Bawa, partner and telecom leader at PwC India, said.
In September 2024, Vi had announced plans to buy $3.6 billion (around ₹30,000 crore) of 4G and 5G gear from Nokia, Ericsson and Samsung over a three-year span to bolster its 4G operation and roll out 5G networks in key cities across its 17 priority circles. The move was seen as a significant step for the telco to improve its market competitiveness against Reliance Jio and Bharti Airtel and stem customer losses.
Switching back to an LC-based payments model with global vendors is likely to give Vi far more cash-flow flexibility and allow it to accelerate its 4G network expansion and 5G rollouts via bigger volume equipment purchases, multiple people aware of the discussions said.
The telco needs to speedily expand its 4G services as it aims to narrow the network coverage difference with rivals Reliance Jio and Bharti Airtel, and stem rapid user losses.
Experts say that banks, till now wary of lending owing to Vi's over ₹2 lakh crore statutory dues, may be amenable to issuing an LC after the government show of support through the debt conversion, which has reduced the telco's spectrum liabilities by ₹36,950 crore. LCs are relatively safer and more advantageous than extending direct loans as the risks are lower and such a strategy also won't sharply increase credit exposure.
A senior executive, close to one of Vi's global vendors, though, cautioned that it remains to be seen "if network gear suppliers accept LCs from Vi, given that the telco still carries substantial debt in its books, even after the latest debt conversion."
On Sunday, the government said it will convert its outstanding spectrum auction dues into equity shares worth ₹36,950 crore, increasing its stake in Vi to 49% from 22.6%. But the conversion accounts for under a fifth of Vi's pending government dues towards adjusted gross revenue (AGR) and spectrum payments.
ET reported in its April 2 edition that Vodafone Idea has said the government's decision to convert part of its dues into equity bolsters the prospects of bank credit to the tune of ₹25,000 crore as the company seeks to expand and upgrade its telecom network. However, bankers said the move may not be enough of an assurance for them to lend to the troubled company.
Until recently, Vi's 4G and 5G network equipment buys were happening purely on a full upfront payments basis, as Vi could not previously obtain LCs from banks required by global vendors to service its initial purchase orders (POs).
Vi's vendor payments for its ongoing 4G/5G network gear buys are covered till Q1FY26, based on its current cash flows and overall cash position. The telco has raised ₹26,000 crore via equity, to fund its initial network gear requirements for 4G expansion and 5G roll outs.
The likes of Nokia, Ericsson and Samsung, though, appear upbeat about a boost to Vi's cash flows after the debt conversion, which may hasten its debt-raise, said an executive aware of the matter.
"Talks between Vi and its vendors for LC-based payments for upcoming POs are underway. Government support has been timely and should help Vi raise debt finance from banks, which is vital for making timely payments to vendors for the next round of purchase orders (POs) and ensuring uninterrupted 4G/5G gear supplies from July 2025 onwards," one of the people cited earlier told ET.
At press time, ET's queries to Vi, Nokia, Ericsson and Samsung were unanswered.
"LCs help improve banks' liquidity position as immediate cash outlay is not needed. So, while discussing with telcos, this approach seems a good way forward for all," Vinish Bawa, partner and telecom leader at PwC India, said.
In September 2024, Vi had announced plans to buy $3.6 billion (around ₹30,000 crore) of 4G and 5G gear from Nokia, Ericsson and Samsung over a three-year span to bolster its 4G operation and roll out 5G networks in key cities across its 17 priority circles. The move was seen as a significant step for the telco to improve its market competitiveness against Reliance Jio and Bharti Airtel and stem customer losses.
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