Mumbai: The government has allowed the merged entity of Vodafone India Ltd and Idea Cellular Ltd to clear dues related to spectrum charges and licence fees, a departure from the telecom department’s earlier stand that the merger will be approved subject to the payment of all dues.

The government has accepted an assurance by Idea at the National Company Law Tribunal (NCLT) that the dues will be paid after the merger is completed, a top government official said, requesting anonymity.

“I think Idea has already given an undertaking to NCLT. So, since they are both going to continue and would be bound by their commitments to the government of India, I don’t think that will be a showstopper of any kind," the official cited above said, requesting anonymity.

The move removes the last remaining hurdle for the merger that will create India’s largest telecom operator, surpassing current market leader Bharti Airtel Ltd. The department of telecommunications (DoT) had earlier set the clearance of dues related to licence fees, spectrum usage charges and one-time spectrum charges as a pre-condition for clearing the mega merger.

The Economic Times on 13 April reported that the government was planning to send a demand notice of around Rs19,000 crore to the two companies. This included Vodafone India’s Rs9,132 crore and about Rs9,738 crore of Idea’s.

“We have asked our offices to work it out but I don’t think it should be that high," the official said, when asked about the amount of money that the two telcos owe the government.

A questionnaire sent to Idea remained unanswered till press time. A Vodafone India spokesperson declined to comment.

There is no need for Idea to pay its share of dues now as it continues to function as a legal entity after the merger, said another person aware of the matter. He was referring to the fact that Vodafone India will be merged into Idea.

“It is Vodafone that gets merged into Idea... Any dues on the accounts of Vodafone will be subsumed by the merged entity," the person added.

This, however, will put additional pressure on the balance sheet of the merged entity, which will start with an initial debt of around Rs1.07 trillion. Vodafone India and Idea, the No. 2 and No. 3 operators in India, decided to merge in 2017 after an aggressive pricing war triggered by Reliance Jio Infocomm Ltd led to losses and shrinking profits. Synergies from the merger are expected to immediately save the combined entity more than $10 billion. The merger was earlier expected to be completed by the first half of calendar year 2018.

The government official cited above added that the department of telecom has received all the clarifications asked from Vodafone and Idea and it is in the final stages of conducting “its due diligence".

Both the companies have received approval from NCLT, the Competition Commission of India and the Securities and Exchange Board of India and now await the final approval from DoT.

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