The union government’s telecom sector reforms package is credit positive for operators. It will sustain telcos’ businesses, including those of Airtel and Jio, said Moody’s Investors Service today. These reforms provide support for the 3+1 players structure, the rating agency added.
Moody’s comments come on the back of a blockbuster relief package announced earlier this week for the telecom sector that includes a four-year moratorium for companies from paying statutory dues, permission to share scarce airwaves, change in the definition of revenue on which levies are paid, and 100% foreign investment through the automatic route.
The measures are aimed at providing relief to companies such as Vodafone Idea that have to pay thousands of crores in unprovisioned past statutory dues. They also include scrapping of Spectrum Usage Charge (SUC) for airwaves acquired in future spectrum auctions.
The agency said the change in the Adjusted Gross Revenue (AGR) definition to exclude non-telecom revenue will ultimately boost sector-wide EBITDA (Earnings before Interest, Taxes, Depreciation and Amortisation) as it will reduce licence fees paid by telcos.
All in all, the reforms are credit positive for Indian telecom companies, including Bharti Airtel and Reliance Jio (the telecom arm of Indian conglomerate, Reliance Industries) because they free up cash flow for reinvestment, enable further investment in next-generation technologies and provide support for a three private plus one state-owned telecom operational structure, Moody’s said.
Bharti’s leverage has been improving over the last 12 months on the back of better profitability of its core Indian mobile business and capital interventions, it noted.
“Should Bharti opt for the moratorium on payments for past spectrum purchases and AGR (Adjusted Gross Revenue) statutory fees, we expect this could free up around Rs 120 billion- Rs 130 billion (Rs 12,000-13,000 crore) of cash flow annually, which could be used to reduce debt further,” it said.
It expects excess cash flow and proceeds from the equity raise (up to Rs 21,000 crore via rights issue announced by the company) will be used in part to help accelerate debt reduction and for investment in next-generation technologies.