Global rating agency Moody’s Investors Service on Monday said that telecom firms in Asia’s emerging markets will face higher spectrum liabilities over the next couple of years and their leverage may weaken, but these essential costs will have limited immediate impact on their cash flows and liquidity.
It pointed out in a new report that the ratings of Asia-Pacific (APAC) telecom companies in emerging markets can tolerate the increased deferred spectrum liabilities at current levels, if these essential costs are the main driver of high debt or weaker leverage.
It projected that for emerging markets — China, India, Indonesia, Malaysia and Philippines — spectrum liabilities to gross debt will increase to more than 16 per cent in 2021 and 2022, from 11.6 per cent in 2020 and 9.3 per cent in 2018, assuming India completes its 5G spectrum auction in 2022.
According to the rating agency, if Bharti Airtel spends up to Rs 37,000 crore ($5 billion) at the 5G auctions, deferred spectrum and adjusted gross revenue (AGR) liabilities could make up about 55 per cent of its adjusted consolidated debt.
“Deferred spectrum liabilities are distinct from bank or capital market debt and are not subject to refinancing. Moreover, in exceptional circumstances, governments are likely to provide more payment buffers, which can alleviate cash flow pressure for some telcos,’’ Nidhi Dhruv, Moody’s vice-president and senior analyst, said.
Moody's added that that despite an increase in debt, deferred spectrum payments have limited immediate impact on operators’ liquidity and cash flow.
Further, spectrum liabilities are long-dated and they do not have maintenance or incurrence covenants, which support the companies’ financial flexibility. Shares of Bharti Airtel on Monday ended with marginal gains at Rs 739.70 on the BSE even as the Vodafone Idea scrip rose over three per cent to Rs 11.20.
The Reliance Industries counter also witnessed good buying support after it announced an hike in pre-paid tariffs on Sunday. The scrip today settled at Rs 2442.50 in the BSE- a gain of 1.26 per cent or Rs 30.25 over the previous close.
