Jio, Airtel balance sheets can absorb costs despite spectrum buys: Moody's

Moody's also expects operators to opt for deferred spectrum payments, thus helping to mitigate the effect on liquidity and cash flows

Spectrum renewals in the recently-held auction will boost telcos' market position and there may not be a significant impact on their balance sheets, as pricing competition abates and profitability improves, Moody's Investors Service said on Thursday.

The spectrum renewals and additional purchases will help the incumbents - Jio and Airtel - strengthen their radio wave holdings and improve their network coverage.

At the same time, as some telcos have large cash holdings while others recently raised debt to fund the purchases, there will not be a significant impact on their balance sheets particularly, as pricing competition abates and profitability improves across the sector, Moody's said in its report.

 

It also expects operators to opt for deferred spectrum payments, thus helping to mitigate the effect on liquidity and cash flows.

Spectrum will be offered for a period of 20 years.

Successful bidders can pay the entire bid amount in one go (upfront), or exercise an option to pay a certain amount (25 per cent for spectrum won in 700 MHz, 800 MHz, 900 MHz bands or 50 per cent for spectrum won in 1800 MHz, 2100 MHz, 2300 MHz, 2500 MHz bands) upfront with the remaining amount in a maximum up to 16 equated annual instalments, after a moratorium of two years.

It is pertinent to mention that bids were received in 800 MHz, 900 MHz, 1800 MHz, 2100 MHz and 2300 MHz bands, but airwaves in the premium 700 MHz and 2,500 MHz bands went unsold.

Reliance Jio's purchase of 488.35 MHz of spectrum across the 800MHz/ 1800MHz/2300MHz bands will enhance its spectrum footprint and improve its network coverage and capacity, Moody's noted.

The company had consolidated cash holdings of USD 30.1 billion as of January 2021, implying that the upfront payment of USD 2.7 billion "can be easily absorbed", it said.

Bharti Airtel Limited's renewal of its expiring spectrum, along with the purchase of additional bandwidth, would strengthen its network coverage.

The company recently issued USD 1.25 billion of bonds, a portion of which is likely to be used to fund the upfront payment for its spectrum purchases. So, the effect on credit metrics of the total spectrum outlay has already been taken into consideration, Moody's said.

Spectrum purchases by Vodafone Idea will not have any impact on the credit quality of Vodafone, Moody's concluded.

"This is because Vodafone does not intend to inject any further capital to support VIL. Vodafone's liability related to VIL is capped at Rs 8,400 crore for certain identified contingent liabilities relating to legal, regulatory, tax and other matters, including the adjusted gross revenue case," it said.

India's first auction of telecom spectrum in five years ended on Tuesday with Rs 77,814.8 crore of airwaves being acquired by telcos, with billionaire Mukesh Ambani's Reliance Jio spending the most.

Reliance Jio picked up 488.35 MHz spectrum in bands such as 800 MHz, 1800 MHz and 2300 MHz for Rs 57,122.65 crore.

Bharti Airtel bid about Rs 18,699 crore to pick up 355.45 megahertz (MHz) out of the total 855.60 MHz of radio frequency acquired by all telcos, while Vodafone Idea Ltd, which is facing a huge liability of unpaid statutory dues of past, bought 11.80 MHz of spectrum worth Rs 1,993.40 crore.