DoT will approve Vodafone-Idea merger only after receiving Rs 2,100 crore bank guarantee
DoT’s guidelines on M&A deals empowers the department to insist on payment of one-time spectrum charges by the transferee company—in this case Idea Cellular
New Delhi: The Department of Telecommunications (DoT) will insist on a bank guarantee for a little over Rs 2,100 crore from Idea Cellular Ltd towards one-time spectrum charges as a precondition to approve its merger with Vodafone India, a person aware of the matter said.
The merger of Idea and Vodafone will create the world’s second-largest and India’s largest telecom firm. It is aimed at dominating a market that Mukesh Ambani’s Reliance Jio Infocomm Ltd had disrupted with free voice calls and low data tariffs.
While the two companies have several unpaid dues, which are being challenged, DoT’s guidelines on mergers and acquisitions (M&A) empowers the department to insist on payment of one-time spectrum charges by the transferee company—in this case Idea Cellular.
“We cannot ask the companies for payments, which are under judicial intervention, but we will ask the resultant merged entity to give an unequivocal undertaking to assume responsibility for such payments as and when the matter is resolved,” the person cited above said, requesting anonymity.
Moreover, the merged entity will also be responsible for payments to be made by Vodafone for one-time spectrum charges.
One-time spectrum charges are payable by companies, which want to convert their administered spectrum or spectrum not bought in an auction to liberalized or auctioned spectrum. Auctioned spectrum can be deployed flexibly for any purpose, unlike administered spectrum.
On Idea’s part, it can approach the Telecom Disputes Settlement and Appellate Tribunal for a stay against a DoT demand.
In a similar case, the tribunal had ordered DoT to clear the deal without demanding a Rs 1,499-crore bank guarantee from Bharti Airtel Ltd for its acquisition of Telenor India. DoT had then approached the apex court, which last month dismissed its petition.
DoT, in any case, cannot insist on payments of licence fee and spectrum usage charges as these are calculated as a percentage of a telco’s adjusted gross revenue (AGR). The definition of AGR has been under dispute for more than a decade and is currently subjudice.
Mint had on 25 May reported that the government will allow the merged entity of Vodafone India and Idea Cellular to clear dues related to spectrum charges and licence fees.
“Also, Vodafone’s existing bank guarantees currently held by DoT for deferred spectrum payments will have to be replaced by Idea,” the person cited earlier said. When companies buy spectrum, they have to pay a certain amount upfront while the rest can be paid in equal yearly instalments.
The two companies are yet to receive the final DoT approval for the merger. They have already received approval from the National Company Law Tribunal, the Competition Commission of India and the Securities and Exchange Board of India.
In March, Vodafone India and Idea Cellular outlined the key leadership team, which will head the merged entity. Aditya Birla Group chairman Kumar Mangalam Birla will be the non-executive chairman of the Vodafone-Idea combine. Balesh Sharma, who is currently the chief operating officer of Vodafone India, has been named the chief executive officer of the merged entity.
The two companies expect the merger to be completed by June-end.
Editor's Picks »
- Recent rise in trade deficit is not due to the oil prices
- Safeguard duty proposal has deepened uncertainty in the solar energy sector
- Fortis Healthcare: What now, after IHH entry and June quarter loss?
- Weak Q1 for Amara Raja but investors pin hopes on softening lead prices
- IDBI Bank Q1 results show how expensive it is for LIC