Singapore, April 22, 2019 -- Moody's Investors Service has affirmed Delhi International Airport
Limited's (DIAL) Ba2 corporate family rating (CFR) and senior secured
ratings.
The ratings outlook is maintained at stable.
RATINGS RATIONALE
"The ratings affirmation principally reflects our expectation that
DIAL's financial metrics will deteriorate but remain above the minimum
tolerance level set for its ratings category despite a material increase
in the cost of DIAL's major project 3A expansion. In addition
the ratings continue to be supported by 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,"
says Spencer Ng, a Moody's Vice President and Senior Analyst.
"DIAL's ability to maintain financial metrics above the ratings
tolerance level will however depend heavily on passenger traffic staying
at or above the level assumed in our base case projections, continued
growth in its non-aeronautical revenue and additional land monetization
to help fund DIAL's large expansion. Any material debt funded
cost increases for the project 3A expansion would also be a challenge
for the company's ratings." adds Ng.
Over the next 2-3 years, Moody's expects DIAL's
funds from operations / debt to remain weak, 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 to
grow at a high-single digit percentage per annum over the next
18 months.
On 29 March 2019, DIAL completed a transaction to lease around 4.9
million square feet of commercial land to Bharti Realty. As part
of the transaction, Bharti will make upfront payments of INR18 billion
to DIAL, of which, around INR4 billion has been received.
Bharti will also pay the airport an on-going license fee of INR3.6
billion per annum during the initial 17-year term of the lease.
Upfront proceeds and on-going revenue from the Bharti transaction
are key to DIAL's ability to absorb the increase in the cost of
its project 3A expansion, which has been revised up to INR98 billion
from the previous management's estimate of INR80 billion.
According to management, bulk of the increase in the expansion budget
relates to the recognition of additional GST related liabilities.
Moody's also expect passenger traffic growth to slow down from the
double-digit percentage recorded in each of the past five years,
because the airport's passenger base has already grown to 69 million
(as at fiscal year ending 31 March 2019) from 41 million over the same
period. In addition, traffic performance would be temporarily
tempered by the suspension of Jet Airways operations and grounding of
737-Max 8 aircraft.
Moody's says that the impact of the Jet Airways suspension would
likely be temporary in nature and manageable for DIAL at the current ratings
level, considering the robust underlying demand for air travel in
India and the likelihood that other airlines will step in to replace capacity
lost due to Jet Airways' suspension.
From a liquidity standpoint, DIAL's management has confirmed
that the airport has sufficient security deposit from Jet Airways to cover
receivables currently due from the airline, which -- along
with its substantial cash holdings -- would support DIAL's
ability to withstand a degree of liquidity stress that might arise from
ongoing deterioration in the airline's situation.
DIAL's Ba2 corporate family rating continues to reflect: (1)
the airport's strong market position and robust passenger base,
(2) its planned INR98 billion capacity expansion at the Indira Gandhi
International Airport, (3) the evolving regulatory environment in
India; and (4) its obligation to pay 45.99% of its
revenue to the Airports Authority of India as a concession fee.
Upward ratings movement in the near term is unlikely, 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 the airport's funds from operations to debt fall below
3%-4% on a sustained basis, which could result
from: (1) a further 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, or (3) lack of progress in further land monetization.
Moody's could also downgrade the ratings if there is a reduction
in the available funds 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 corporate family rating 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 stable) 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 Indira
Gandhi International Airport, which is located in the political
capital of India under an Operations, Management and Development
Agreement, entered in 2006 with the Airports Authority of India,
a government agency. The concession is for a 30-year period,
and DIAL has an option to extend it for another 30 years, subject
to meeting it defined performance criteria.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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
