Idea-Vodafone Merger; DoT Requests Payment of 2,100 crore Bank Guarantee

In what could be perceived as a potential stumbling block to the anticipated merger between Idea Cellular Ltd. and Vodafone India, the Department of Telecommunications (DoT) insists that a bank guarantee of 2,100 crore rupees be paid as a pre-condition for this merger. The DoT has not yet issued a go ahead on the merger, but is adamant about receiving this fee as it will partially cover existing dues that both entities have yet to clear. A spokesperson from the DoT, under condition of anonymity, indicated that while the government cannot seek payments that are under judicial review, it could request the newly merged business to acknowledge existing dues of its former individual parts, to be paid following the merger.

Earlier, the DoT had attempted to receive payment of 1,499 crore rupees as bank guarantee when Telenor India was being acquired by Bharti Airtel Ltd. However, this move and subsequent appeal was struck down by the Telecom Disputes Settlement and Appellate Tribunal. While it is not immediately clear whether or not Idea Cellular Ltd. would seek similar assistance from the Tribunal, what is clear is that the DoT is invoking specific sections of its guidelines on mergers and acquisitions to force the company to make payment for one-time spectrum charges. The burden of this payment will fall on Idea Cellular Ltd., as the transferee.

The merger between Idea Cellular Ltd. and Vodafone India will create India’s largest telecommunications company, a move believed to have been born of the need to counter the market upheaval caused by Reliance Jio Infocomm Ltd. which offered an essentially more-for-less package of increased services at a fraction of the cost of existing cellular service providers that proved to be popular with the Indian public.