Global credit rating agency Moody’s comments on the Telecom scenario in India and other Asian countries. APAC’s region telecom service providers to have increased spectrum liabilities in the next two years.

According to Telecom Minister Ashwini Vaishnaw, the Indian Government has decided to conduct the 5G spectrum auctions next year (2022) by April-May. As of now the Telecom Regulatory Authority of India –TRAI is conducting various discussions and consulting to come up with an outcome that is satisfactory to all the involved parties.

The world-famous credit rating agency Moody’s has made clear its observations on the telecom scenario prevailing in India. The agency seems positive that there is a huge possibility that the spectrum liabilities will increase, not only in India but in the Asia Pacific (APAC) region as a whole.

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.

The future of 5G IN India is slightly uncertain currently with the auctions being delayed. The financial liabilities of the telecom companies in India also do not present a very conducive environment for major expansions to happen shortly.

However recently the hike in prices by Airtel, Vodafone and Jio has paved way for some hope. Considering all these factors, the global credit rating agency has made some inferences regarding the 5G spectrum auctions and predict that the liabilities are likely to increase for the next 1-2 years.

Taking the case of Bharti Airtel as an example, the agency assumes that there will be a moratorium of 2 years with a repayment period of 16 years.

Bharti Airtel Limited’s (Ba1 positive) spectrum liabilities incur an interest rate of 7.3% to 10%, which is generally in line with its capital leases, but higher than its bond issuances, which generally have shorter tenors… India’s leading mobile operator, Reliance Jio, a subsidiary of Reliance Industries Limited (Baa2 stable), has recently used this option. Moody’s said.

Nidhi Dhruv, Moody’s Vice President explains that Deferred spectrum liabilities are not subject to refinancing. She explains that these are distinct from bank or capital market debt. In certain cases, the concerned governments could step in and provide more financial aid to ease the financial burden of the telecos.

As for the major telcos accepting the moratorium as per the Indian Government in the telecom reform package, Moody’s expects that this move will enable the companies to save millions of Rupees, which will be beneficial in the long run.