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Rating Action:

Moody's affirms Hyderabad Airport's Ba2 rating; negative outlook

23 Sep 2021

Singapore, September 23, 2021 -- Moody's Investors Service has affirmed GMR Hyderabad International Airport Limited's (HIAL) Ba2 corporate family rating (CFR) and Ba2 senior secured USD bond rating.

The outlook on the ratings remains negative.

"The rating affirmation reflects our expectation of a gradual improvement in HIAL's revenue over the next 2-3 years, driven by the implementation of higher tariffs under the final tariff order from April 2022, and a gradual recovery in passenger traffic and non-aeronautical businesses under our base case," says Spencer Ng, a Moody's Vice President and Senior Analyst.

"Nevertheless, the headroom available to HIAL to manage any further downside risks have narrowed relative to our previous expectation. This is due to the regulator's decision to defer around INR6.7 billion of HIAL's regulated revenue to the next control period starting in April 2026, and the delay in passenger traffic recovery caused by the second wave of coronavirus cases in the June 2021 quarter," adds Ng.

RATINGS RATIONALE

HIAL has a long-term concession to operate the Rajiv Gandhi International Airport (RGIA) in Hyderabad under a public-private partnership model. HIAL is undertaking a major airport expansion that will cost INR55 billion (excluding interest during construction) with targeted completion before the end of 2022.

After factoring in the revenue deferral and slower traffic recovery, HIAL's funds from operations (FFO) will likely remain negative over the next 12-18 months. Moody's does not expect HIAL's FFO/debt to recover above the minimum tolerance level until the year ending 31 March 2025 (fiscal 2025). Given the already extended recovery phase, any further delay in the recovery time frame will exert downward pressure on the rating.

As of the end of June, the airport had around INR27 billion of available liquidity, comprising largely short-term liquid investments. Despite HIAL's substantial liquidity holdings, Moody's expects the airport to need additional debt to complete the expansion, considering the remaining spending commitment as well as the impact of the revenue deferral in fiscals 2023 and 2024.

Moody's base-case projections exclude the forthcoming upfront proceeds from HIAL's recent transaction to lease out its IT services, or the repayment of a INR2 billion loan HIAL has extended to its promoter maturing in August 2022. The timely completion of these transactions will help reduce the funding requirement.

Despite the weaker credit metrics, the visibility of the airport's recovery path over the next 2-3 years has improved considering the certainty over its tariffs, progress made in the airport expansion and the improving vaccination rate in India.

The airport expansion is close to 65% complete as of mid-September, with most of the airside works finished and the terminal extension nearing completion, which reduces the risk of a material cost or time overrun. Management expects the expansion to be delivered on time and on budget, by September 2022.

Moody's expects passenger traffic at Hyderabad Airport to increase from the previous fiscal year's, driven by solid underlying demand for air travel. Monthly domestic passenger traffic has recovered from a low of around 300,000 in May amid lockdowns imposed during the second wave, to over one million in August, although it remains just below a 12-month high of 1.1 million in February and March 2021.

Nevertheless, a full recovery of passenger traffic to pre-pandemic levels is not likely until 2023 or 2024 under Moody's base-case scenario, given the lag in resumption of international travel, which represents just below 20% of traffic at Hyderabad Airport in 2019.

While not incorporated in Moody's base case, passenger recovery remains vulnerable to further outbreaks of coronavirus cases, particularly given the relatively low rate of vaccination in India currently, where only 15% of the population has been fully vaccinated.

HIAL's Ba2 CFR continues to reflect the airport's established market position in its catchment area, which has a predominantly domestic origin and destination passenger mix.

The negative outlook reflects potential downside risks over the next 12-18 months, that could stem from a slower-than-expected recovery in the airport's traffic and the airport's very limited financial headroom to manage further downside risks.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade of the ratings is unlikely over the next 12-18 months, given the negative outlook and HIAL's high financial leverage. Nevertheless, Moody's could change the outlook to stable if operating conditions recover to a level that would restore the airport's FFO/debt to the mid-single digit percentage range on a sustained basis.

On the other hand, Moody's could downgrade HIAL's Ba2 ratings if there is any indication of liquidity stress or if its FFO/debt is likely to remain below 4% on an extended basis beyond Moody's current expectations. Such delays could result from (1) a slower-than-expected recovery in operating conditions, or (2) material missteps in the implementation of the expansion project.

The principal methodology used in these ratings was Privately Managed Airports and Related Issuers published in September 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1092224. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

GMR Hyderabad International Airport Limited has a long-term concession to operate the Rajiv Gandhi International Airport in Hyderabad under a public-private partnership model. The airport is one of the leading airports in India by passenger traffic.

The airport has a current design capacity of 12 million passengers per annum. Equity in the company is held by GMR Airports (63%), Malaysia Airports Holdings Berhad (11%, A3 negative), the Government of India (Baa3 negative) through the Airports Authority of India (13%), and the Government of Telangana (13%). GMR Airports is a subsidiary of GMR Infrastructure Limited (51%) and Groupe ADP (49%).

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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

Ian Lewis
Associate Managing Director
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

No Related Data.
© 2023 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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