According to a recent report by Moody’s, Reliance Jio, Bharti Airtel and Vodafone Idea (Vi) are in a comfortable position to make spectrum purchase payments, which will not impact their credit quality.
This, according to the report, is due to excess cash on their balance sheets and funds raised by the telcos. 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, added Moody’s.
Further, the report added that spectrum renewals and additional purchases will help Jio and Airtel in strengthening their spectrum holdings and improve their network coverage. According to Moody’s, telcos will opt to defer their spectrum payments, which helps mitigate the effect on liquidity and cash flows.
Commenting on telco’s cash balances, the report said that Reliance Jio had consolidated cash holdings of $30.1 billion as of January 1, 2021, implying that the upfront payment of $2.7 billion can be easily absorbed. Further, Airtel had recently issued $1.25 billion of bonds, a portion of which is likely to be used to fund the upfront payment for its spectrum purchases. Similarly, for Vi, the spectrum payouts will not have any impact on the credit quality of Vodafone. 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 84 billion for certain identified contingent liabilities relating to legal, regulatory, tax and other matters, including the adjusted gross revenue case, it added.
Further, it said that the auction results will support government’s target for non-tax revenue from other communication services for the fiscal year ending March 2022.
