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Delhi International Airport to benefit from aviation push, but S&P also flags concern

S&P also has some words of caution for the airport

By: | Mumbai | Updated: September 23, 2016 9:15 AM
The rating agency made this comment with reference to DIAL's proposed masala bond and the dollar-denominated bond issue and the rationale behind the 'BB' rating assigned to the issue. (PTI) The rating agency made this comment with reference to DIAL’s proposed masala bond and the dollar-denominated bond issue and the rationale behind the ‘BB’ rating assigned to the issue. (PTI)

The government’s thrust towards developing regional airports and incentivising airlines to provide connectivity is a long-term positive for Delhi International Airport, as it is the largest airport in north India, Standard and Poor’s said on Thursday.

The rating agency made this comment with reference to DIAL’s proposed masala bond and the dollar-denominated bond issue and the rationale behind the ‘BB’ rating assigned to the issue.

In 2016, DIAL saw its revenues increasing by 15.9% and the EBITDA margin growing by 35.7% on the back of robust growth in passenger and non-aeronautical revenues.

DIAL is slated to use the proceeds of the issue to refinance its existing rupee loans and external commercial borrowings.

However, S&P expressed concerns over the evolving regulatory environment which exposes the company to higher regulatory risks, sharp variations in tariff and relatively weaker profitability due to significant revenue sharing with the Airports Authority of India.

The AAI has asked DIAL to reduce its airport charges by 78% in the second control period and that according to experts can impact the profitability of the airport in future.

“The stable outlook reflects our view that Delhi International Airport’s (DIAL) current strong financials and cash accumulation will help cushion the sharp fall in company’s cash flows after tariff reduction, such that the ratio of funds from operations (FFO) to debt is likely to stay between 8% and 10% in fiscal 2018,” said Abishek Dangra, director, corporate ratings.

The analyst also observed that ratings could further be lowered if DIAL’s ratio of funds from operations to debt is found to be less than 8% for a prolonged period because of regulator’s tariff order, delays in commercial property development and decrease in rental income.

“Moody’s understands that DIAL has yet to engage the design consultants for this expansion project, but Project 3A is likely to require capex in the range of Rs 40-70 billion over next 3-5 years, depending on the project final size and composition,” rating agency Moody’s had said in on Wednesday.

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