Singapore, February 10, 2020 -- Moody's Investors Service has today affirmed Delhi International Airport
Limited's (DIAL) Ba2 corporate family rating (CFR) and senior secured
ratings.
The ratings outlook remains stable.
RATINGS RATIONALE
"The ratings affirmation principally reflects the expected growth in DIAL's
revenue over the next 12-18 months, underpinned by a sustained
recovery in passenger traffic from the decline recorded in the first half
of the fiscal year ending March 2020 and increasing contributions from
its non-aeronautical businesses," says Spencer Ng,
a Moody's Vice President and Senior Analyst. "These factors
should help keep DIAL's financial metrics above the minimum tolerance
level set for its rating."
However, given the substantial funding requirement for its major
Phase 3A expansion, Moody's expects DIAL's funds from operations/debt
to remain weak over the next 2-3 years, with a very limited
buffer above the minimum tolerance level of 3%-4%.
Moody's financial projections assume that: (1) aeronautical tariffs
will remain at the current level during the third regulatory period between
April 2019 and March 2024, and (2) passenger traffic growth will
improve to the mid-single digit percentage range in fiscal 2021
as one-off factors such as suspension of Jet Airways gradually
dissipate.
DIAL is undertaking a major expansion of its Indira Gandhi International
airport, which is expected to cost around INR98 billion and take
about three to four years to complete. To fund the expansion,
DIAL will rely on its substantial cash on hand, cash flow from operations,
proceeds from the monetization of land parcels, as well as incremental
debt.
As such, the airport's financial profile over the expansion
period will also be driven by its ability to monetize additional land
parcels to help support its expansion funding requirements. Challenges
in this regard will likely result in additional debt needed to complete
the expansion, which would exert additional pressure the airport's
financial profile.
Moody's expects passenger traffic at Delhi Airport to continue to
recover from the 5% decline recorded in the first half the current
fiscal year. Moody's expects passenger numbers to grow in
the high-single digit percentage range over the medium term,
although lower growth is expected in fiscal 2021 due to continued softness
in the global economy and the temporary impact from the coronavirus outbreak.
"Revenue from the non-aeronautical business grew by 6%
in the first half of fiscal 2020 despite the weak traffic, driven
primarily by improving margins in key segments, such as duty free
and cargo. Further growth in the non-aeronautical business
-- to be supported by the recovery in traffic and further margin
expansion -- will also be key to the airport's ability to preserve
its credit metrics," says Ng.
Finally, the Ba2 ratings also consider DIAL's substantial balance
of cash and short-term investments in hand, which provide
the airport with some additional financial flexibility over the next 12
months. Moody's expects the airport to raise additional debt
in the near future to shore up its funding position.
An upgrade is unlikely in the near term, given that the airport's
financial leverage will remain elevated during the expansion phase,
under Moody's base case scenario.
On the other hand, Moody's could downgrade DIAL's Ba2 ratings if
FFO to debt falls below 3%-4% on a sustained basis,
which could result from: (1) an increase in the cost of the expansion
or delay to the current expansion program; (2) underperformance in
DIAL's aeronautical or non-aeronautical revenue relative to Moody's
expectation; (3) lack of progress in finalizing the existing transaction
with Bharti Realty or in further land monetization; or (4) a more
widespread outbreak of the coronavirus in DIAL's key passenger markets.
Moody's could also downgrade the ratings if there is a reduction in the
funds available at the airport for the expansion, because of dividend
payments or related-party transactions.
Moody's has used its Joint Default Analysis approach for Government Related
Issuers in assessing DIAL's ratings, because the company is more
than 20% government-owned through the Airports Authority
of India, a government agency.
DIAL's Ba2 CFR combines: (1) the company's Baseline Credit Assessment
(BCA) of ba2; and (2) the low likelihood of support that Moody's
believes the Government of India (Baa2 negative) will provide to DIAL
in the event that extraordinary financial support is required.
This assumption of support results in the absence of uplift to the company's
BCA.
The methodologies used in these ratings were Privately Managed Airports
and Related Issuers published in September 2017, and Government-Related
Issuers published in June 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of these methodologies.
Delhi International Airport Limited (DIAL) is the concessionaire for the
Indira Gandhi International Airport, which is located in the political
capital of India, and operates under an Operations, Management
and Development Agreement, concluded in 2006 with the Airports Authority
of India, a government agency. The concession is for a 30-year
period, and DIAL has the option to extend it for another 30 years,
subject to the company meeting defined performance criteria.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
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
