Covid Woes: Moody’s downgrades GMR’s Delhi airport

By: |
June 12, 2021 4:45 AM

DIAL is the concessionaire for the Indira Gandhi International Airport, in Delhi, and operates under an operations, management and development agreement with the Airports Authority of India.

Given a large majority of DIAL's revenue is linked to airport traffic, Moody's expects revenue to fall in line with the drop in passenger numbers.Given a large majority of DIAL's revenue is linked to airport traffic, Moody's expects revenue to fall in line with the drop in passenger numbers.

Moody’s Investors Service on Friday downgraded Delhi International Airport Limited’s (DIAL) corporate family rating (CFR) and senior secured ratings to ‘B1’ from ‘Ba3’. The rating agency also downgraded DIAL’s baseline credit assessment (BCA) and Cliffton Limited’s senior secured bond rating to ‘B1’ from ‘Ba3’, and said the outlook on the ratings is negative.

Moody’s said the negative outlook captures downside risks over the next 12-18 months, given the material uncertainty in the recovery of India’s passenger traffic, which will be heavily influenced by when travel restrictions are lifted and the successful roll-out of vaccines as outlined by the government.

Passenger traffic at the airport had likely fallen by more than 60% in May from the February 2021 level based on reported daily traffic figures. Given a large majority of DIAL’s revenue is linked to airport traffic, Moody’s expects revenue to fall in line with the drop in passenger numbers.

Spencer Ng, a Moody’s vice-president and senior analyst, said, “The rating downgrade reflects the adverse impact of reduced passenger traffic and airport revenue in the current fiscal year ending March 2022, due to the surge in daily infection numbers since late March. We believe the consequent reduction in revenue will lead to additional debt being required to complete the airport’s expansion and prolong the recovery in DIAL’s financial metrics to a level consistent with a Ba rating.”

DIAL is the concessionaire for the Indira Gandhi International Airport, in Delhi, and operates under an operations, management and development agreement with the Airports Authority of India.

Cliffton Limited is an orphan special-purpose vehicle established to facilitate a dollar bond issuance. Proceeds from the transaction were used to subscribed to rupee non-convertible debentures issued by DIAL. DIAL does not have any equity interest or management control in Cliffton Limited.

Moody’s observed that DIAL has limited capacity to offset reduced cash flow by cutting dividends or deferring its capital expenditure in a meaningful way, under currently announced plans. The rating firm expects the airport to need additional debt — relative to previous forecasts — in lieu of the operating cash flow lost due to the second coronavirus wave, to complete its Rs 98-billion expansion.

Moody’s expects DIAL’s funds from operations (FFO) to remain negative for the next 12 months after factoring in capitalised interest. FFO would likely remain negative until after the completion of the airport expansion and implementation of higher tariffs after the next regulatory determination.

The ratings firm also said that although revenue should gradually recover in line with passenger traffic, the projected growth under its base-case scenario is unlikely to be sufficient to cover rising interest expenses (including capitalised interest) as the airport draws down from its lease arrangement or other debt to fund the expansion over the next 2-3 years. This is particularly so after considering DIAL’s obligation to share 45.99% of its revenue with AAI under its concession agreement.

However, factoring the proceeds from its $450 million bond issuance in March, DIAL has a solid liquidity profile that is likely to cover its operating and financing costs, as well as planned capital spending for the next 12 months. As of the end of March, the airport had total liquidity, including both cash and short-term investment of close to Rs 5,000 crore. “Some of the amount will repay its $288.75 million bond expiring in February 2022, including around $105 million of prepayment made in April 2021,” it said.

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