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Announcement:

Moody's: Delhi Airport's aeronautical revenue faces lower downside risk on new tariff ruling

22 Nov 2018

Singapore, November 22, 2018 -- Moody's Investors Service ("Moody's") says that the ruling by the Airport Economic Regulatory Authority of India (AERA) on 19 November 2018 on the application of the Base Airport Charges principle in setting aeronautical tariffs is credit positive for Delhi International Airport Limited (DIAL, Ba2 stable).

In particular, the new ruling removes a key concern over the potential reduction in DIAL's tariffs in the next regulatory control period (CP3), which will start in April 2019.

Under DIAL's State Support Agreement with the Government of India (Baa2 stable), the airport's aeronautical tariffs must remain at or above 110% of the Base Airport Charges applicable back in 2006 throughout its concession, after completion of the airport's Phase 1A expansion in 2010.

DIAL's aeronautical revenue in the fiscal year ending March 2019 will modestly increase, after the new tariffs -- set at 10% above the Base Airport Charges (BAC+10%) -- are implemented on 1 December 2018.

"More importantly, the new ruling removes downside risk associated with the airport's tariffs in the next control period, at a time when DIAL will require additional capital funding to deliver its planned expansion over the next three years," says Spencer Ng, a Moody's Vice President and Senior Analyst.

Before the ruling, a key concern as to DIAL's near-term credit profile was the need for the airport to effectively refund more than INR50 billion of excess revenue - based on AERA's estimate - collected in the current control period (April 2014 to March 2019). Absent the ruling, DIAL's aeronautical tariff would have faced downward pressure, due to the refund requirement.

"Under the BAC+10% tariffs, DIAL's aeronautical revenue will move in line with changes in passenger traffic and aircraft movements at the airport under our base case scenario," adds Ng. "While such a situation also exposes the airport to volume risk, such risk is alleviated by our expectation of passenger traffic growth at low double-digit percentages per annum over the next 1-2 years."

DIAL is about to embark on an INR80 billion expansion program, which will increase its passenger handling capacity to around 97 million per annum, up from the current 66 million.

Moody's expects additional debt would be required by early fiscal 2021 to fund the planned expansion-related spending, after available cash and short-term investments of INR29 billion (as at September 2018) is used up. Depending on the final amount of incremental debt, the airport's financial profile and ratings could be pressured.

The airport's financial leverage — as measured by funds from operations/debt — is already projected by Moody's at the weaker end of the range set for its Ba2 ratings level at the end of fiscal 2019 (31 March 2019), following a tariff cut implemented in July 2017. As such, DIAL's revenue and operating cash flow will need to grow to help fund the expansion and keep its credit metrics above the minimum tolerance level of 3%-4%.

In addition to increases in aeronautical revenue, DIAL will likely require continued revenue growth from its non-aeronautical businesses at mid-to-low double-digit percentages and additional proceeds from the monetization of land holdings at the airport to keep pace with the expected increase in debt under Moody's base case scenario.

Moody's base case scenario further assumes that DIAL will not pay any dividends or execute any related-party transactions that could compromise its access to funds available at the airport to complete its INR80 billion expansion.

Moody's understands that DIAL will look to finalize its funding strategy for the expansion after the regulator issues its consultation paper for the airport's tariffs in CP3, likely by March 2019. The airport is also in the process of selecting an EPC contractor for the expansion project through a tender process.

Moody's will assess the full credit impact of the material expansion and DIAL's funding plans, as well as any potential for pressure on DIAL's rating as more detailed information surrounding the contracting and funding strategy becomes available.

Subscribers can access the issuer comment titled "New tariff order that reduces risk to aeronautical revenue is credit positive" at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1151074

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Spencer Ng
Vice President - Senior Analyst
Project & Infrastructure Finance
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

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