Telecommunications companies in Asia’s emerging markets may face higher spectrum liabilities, but it would have limited immediate impact on their liquidity and cash flow, said a report.
Moody’s Investors Service said that the ratings of Asia-Pacific telcos in emerging markets could tolerate increased deferred spectrum liabilities at current levels if these essential costs are the main driver of high debt or weaker leverage.
“For emerging markets (China, India, Indonesia, Malaysia, and the Philippines), spectrum liabilities to gross debt will increase to more than 16.0% 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,” the credit rating agency said.
"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," says Nidhi Dhruv, a Moody's Vice President, and Senior Analyst.
Among APAC's developed markets, only Hong Kong SAR, China (Aa3 stable) has a spectrum payment mechanism with a deferred spectrum component, similar to many emerging market telcos. Hong Kong Telecommunications (HKT) Limited's (Baa2 stable) leverage is higher partly as a result of this spectrum liability.
Despite an increase in debt, deferred spectrum payments have a 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 an additional moratorium on telcos' spectrum payments.