Telecommunications companies (telcos) in Asia’s emerging markets will face higher spectrum liabilities, but these essential costs are not subject to refinancing and have limited immediate impact on cash flows and liquidity.
In a statement on Monday (Nov 29), Moody’s Investors Service said governments had shown flexibility on spectrum payments from telcos.
It said the ratings of Asia-Pacific telcos in emerging markets can tolerate increased deferred spectrum liabilities at current levels if these essential costs are the main driver of high debt or weaker leverage.
Nidhi Dhruv, a Moody’s vice-president and senior analyst, said deferred spectrum liabilities are distinct from bank or capital market debt and 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,” she said.
Moody’s said for emerging markets (China, India, Indonesia, Malaysia and the Philippines), spectrum liabilities to gross debt will increase to more than 16% in 2021 and 2022, from 11.6% in 2020 and 9.3% in 2018, assuming India (Baa3 stable) completes its 5G spectrum auction in 2022.
It said in particular, if Bharti Airtel Ltd (Ba1 positive) spends up to 370 billion Indian rupees (US$5 billion or about RM20.96 billion) on 5G auctions, deferred spectrum and adjusted gross revenue liabilities could make up about 55% of its adjusted consolidated debt.
Moody’s said among Asia-Pacific’s developed markets, only Hong Kong (Aa3 stable) had a spectrum payment mechanism with a deferred spectrum component, similar to many emerging market telcos.
It said Hong Kong Telecommunications (HKT) Ltd’s (Baa2 stable) leverage is higher partly as a result of this spectrum liability.
Moody’s said despite an increase in debt, deferred spectrum payments had limited immediate impact on operators’ liquidity and cash flow.
Moreover, it said spectrum liabilities are long-dated and not subject to refinancing risk.
“And these liabilities do not have maintenance or incurrence covenants, which support companies’ financial flexibility. In times of need, governments have provided additional moratoriums on telcos’ spectrum payments,” it said. The Edge Markets