"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," Moody's vice-president and senior analyst Nidhi Dhruv said.
For emerging markets (China, India, Indonesia, Malaysia, and the 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 (Baa3 stable) completes its 5G spectrum auction in 2022, she said.
In particular, if India’s Bharti Airtel Ltd. (Ba1 positive) spends up to US$5 billion (RM21 billion) at 5G auctions, deferred spectrum and adjusted gross revenue liabilities could make up about 55 per cent of its adjusted consolidated debt.
Among APAC's developed markets, only Hong Kong (Aa3 stable) has a spectrum payment mechanism with a deferred spectrum component, similar to many emerging market telcos.
Hong Kong Telecommunications (HKT) Ltd's (Baa2 stable) leverage is higher, partly as a result of this spectrum liability.
Despite an increase in debt, deferred spectrum payments have limited immediate impact on operators' liquidity and cash flow.
Moreover, spectrum liabilities are long-dated and are 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 moratorium on telcos' spectrum payments, she said. - Bernama