Spectrum costs will drive up debt for some Asia-Pacific telcos: Moody's

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, Moody's Investors Service said on Monday.

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, Moody's Investors Service said in a new report.

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, it added.

In particular, if Bharti Airtel spends up to Rs 37,000 crore ($5 billion) at 5G auctions, deferred spectrum and adjusted gross revenue liabilities could make up about 55 per cent of its adjusted consolidated debt, it further added.

"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, a Moody's vice president and senior analyst, said.

Moody's explained that despite an increase in debt, deferred spectrum payments have limited immediate impact on operators' liquidity and cash flow.

Also, spectrum liabilities are long-dated and are not subject to refinancing risk.

These liabilities do not have maintenance or incurrence covenants, which support companies' financial flexibility.

In times of need, governments have provided additional moratorium on telcos' spectrum payments, it observed.

Photograph: Adnan Abidi/Reuters