Vodafone Idea Shares Surge 6% on Bank Guarantee Waiver Speculations

Vodafone Idea shares jumped 6% on November 27, hitting ₹7.92, and marking a solid three-day rally of 17.5%. What’s behind the surge? Reports suggest the Union Cabinet may approve waivers on bank guarantees (BGs) for spectrum bought before 2022. If true, this could help ease the company’s financial crunch.

Right now, Vodafone Idea is weighed down by over ₹24,700 crore in BG obligations. When combined with Bharti Airtel’s liabilities, the total tops ₹30,000 crore. Earlier this year, Vodafone Idea raised ₹24,000 crore in equity and is currently hunting for ₹25,000 crore in loans and an extra ₹10,000 crore in guarantees or letters of credit. If the BG waiver goes through, it could free up credit limits and make borrowing easier, giving the company more breathing room to invest in its network and grow its business.

This potential relief ties into reforms the Cabinet rolled out in 2021, which scrapped BG requirements for spectrum purchased after 2022. Extending this benefit to older spectrum could help telecom companies like Vodafone Idea cut costs, improve cash flow, and direct more money toward upgrading infrastructure.

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

That said, Vodafone Idea clarified on November 26 that it hasn’t received formal confirmation from the Department of Telecommunications (DoT) about this decision yet.

It’s important to note the company still faces big financial challenges, including unresolved adjusted gross revenue (AGR) dues. Just two months ago, the Supreme Court rejected petitions from 19 telecom players, including Vodafone Idea, to reassess their AGR liabilities—a decision that keeps the pressure on the struggling telecom operator.

Financially, there are some signs of improvement. For Q2 FY25, Vodafone Idea reduced its net loss to ₹7,176 crore, down from ₹8,738 crore a year earlier. Revenue grew by 2% year-on-year to ₹10,932 crore. But there’s a downside—subscriber numbers fell slightly, with total users dropping to 205 million and 4G users slipping to 125.9 million from 126.7 million in the previous quarter.

Even with the recent stock rally, Vodafone Idea’s shares have lost half their value this year, reflecting investor concerns over its financial health. Analysts have mixed views: JP Morgan has kept a 'neutral' rating with a price target of ₹10, while Nomura India remains more bullish with a 'Buy' rating and a ₹14 target.

One lingering issue is the government’s decision in February 2023 to convert ₹16,133 crore of Vodafone Idea’s dues into equity at ₹10 per share—even though the stock was trading below ₹7 at the time. This move raised eyebrows about the company’s valuation and the government’s stake.

If the BG waiver is confirmed, it could be a big step toward easing Vodafone Idea’s financial strain and setting it up for longer-term growth. Let’s wait and see how it all plays out.