Vi weighs 'letters of credit' model to buy gear

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.

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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