Moody’s Investors Service on Wednesday downgraded GMR Infra-run Hyderabad International Airport’s (GHIAL) ratings, citing concerns about the expansion work to be carried out in the next four years at an estimated cost of Rs 5,500 crore. The credit rating agency has reasoned lack of debt funding plan, use of operating cash for capital spending and proposed lowering of airport by the regulator for this downgrade. GHIAL began work on more than doubling the airport capacity to 34 million passengers per annum in April this year. The airport handled around 18 million passengers in FY18, growing at 20% year-on-year against a design capacity of 12 mppa.
Moody’s said GHIAL’s financial metrics are expected to deteriorate in the next 18 months due to additional debt incurred during FY20 to part-fund the airport expansion work. The operator plans to fund the balance of the capital spending with operating cash flow. The airport has available cash and cash equivalent of Rs 1,600 crore as on June 2018, which it will use as the primary source of funding for the next 12 months.
“GHIAL does not currently have committed debt funding in place for the expansion and plans to commence its fund raising process in the second half of 2019, potentially exposing the airport to higher funding costs if there are any unexpected challenges in its operations or expansion, or should capital market conditions deteriorate further,” analysts at Moody’s noted. Hyderabad airport tariffs are expected to decline marginally due to reduction in fee for airlines and passenger from 2019 onwards.
Airports Economic Regulatory Authority, the airport regulator, had slashed expansion cost estimates given by GHIAL. Moody’s believes this will outweigh the benefits of a likely low-double digit percentage increase in passenger traffic at the airport and put negative pressure on the company’s financial profile.
Key elements of the expansion include the extension of the existing passenger terminal, a new parallel taxiway, as well as the widening of the ramp connection from the main access roads. GHIAL is the sixth-largest airport in the country in terms of passengers handled after Delhi, Mumbai, Bengaluru, Chennai and Kolkata.