Singapore, January 22, 2021 -- Moody's Investors Service has affirmed GMR Hyderabad International Airport
Limited's (HIAL) Ba2 corporate family rating (CFR).
At the same time, Moody's has assigned a Ba2 rating to HIAL's
proposed senior secured USD bond of up to USD300 million.
The Ba2 senior secured rating of the proposed bond reflects its pari passu
ranking with other senior secured obligations of HIAL.
The outlook on the ratings remains negative.
Proceeds from the bond will be used to meet the airport's capital
expenditure requirements.
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 and take 2-3 years to complete.
RATINGS RATIONALE
"The rating affirmation reflects the expected improvement in HIAL's
revenue over the next 12-18 months, on the back of a likely
tariff increase in the next control period (CP3) 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.
"The recovery in HIAL's FFO/debt metrics back to the mid-single
digit percentage range will likely take 2-3 years, considering
the additional debt the airport is raising to fund the remaining funds
needed to complete its expansion," adds Ng.
Despite the reduction in passenger traffic as a result of the pandemic,
HIAL is committed to proceeding with the original expansion program with
only a modest delay that is driven by time needed to remobilize its workforce
after the lockdown. Moreover, HIAL has entered into fixed-term
fixed-price contracts for the expansion, which reduces the
ability to postpone or scale down the project in response to the decline
in its operating cashflow.
The negative outlook reflects potential downside risk over the next 12-18
months, which could stem from a slower than expected recovery in
the airport's traffic, an unfavorable or delayed tariff decision
from the upcoming reset, or delays in securing the additional funding
required to complete its expansion.
Moody's expects airport tariffs to increase in CP3 as a result of
its growing regulated asset base, after factoring in its expansion-related
capital spending and its contribution to the Hyderabad metro project.
However, the extent of the tariff increase will depend on the regulator's
decision over how much of the expansion spending should be capitalized
into HIAL's regulated asset base, the airport's entitlements
to revenue true-up from past control periods, as well as
its assumption over passenger traffic .
Tariff decisions and implementations have frequently been delayed in the
past, and -- if repeated -- could keep
HIAL's FFO/debt metrics at a very weak level and result in a faster than
expected depletion of its liquidity position. HIAL's next
tariff control period is scheduled to commence in April 2021.
As at the end of December, the airport had around INR13 billion
of available liquidity which is sufficient to meet its cash requirements
through to the end of September 2021. This includes cash on hand
of around INR2 billion and short-term investments of INR11 billion,
but excludes INR2 billion of intercompany deposits extended to its ultimate
parent entity, GMR Infrastructure, which is scheduled to be
repaid in August 2021.
Successful completion of the proposed bond issuance will strengthen the
airport's liquidity profile and will provide a substantial portion
of the remaining funding needed for the expansion.
In the first six months of the fiscal year ending March 2021, monthly
passenger traffic at RGIA fell 76% relative to the comparable period
in the previous fiscal year. However, domestic traffic has
shown early signs of recovery in recent months, with monthly passenger
numbers in November exceeding 50% of the 2019 level.
Moody's does not expect a full recovery of passenger traffic to pre-pandemic
levels until 2023, and any recovery remains vulnerable to a potential
resurgence in infections or a default in major airline counterparties.
A recovery in HIAL's traffic - once the coronavirus outbreak stabilizes
-- should benefit from the strong industry fundamentals in India
and the airport's predominantly domestic-based passenger
mix.
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.
Moody's regards the coronavirus pandemic as a social risk under its environmental,
social and governance framework (ESG), given the substantial implications
for public health and safety.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade of the ratings is unlikely, given the negative outlook
and the impact of the coronavirus outbreak. Nevertheless,
Moody's could change the outlook to stable if (1) the new tariff is implemented
in line with Moody's base case expectation, (2) operating conditions
recover to a level that would allow the airport to maintain FFO/debt at
the mid-single digit percentage range, and (3) it successfully
completes its debt issuance initiatives.
On the other hand, Moody's could downgrade HIAL's Ba2 ratings if
there is any evidence of liquidity stress or a material delay in securing
the additional funding needed to complete the expansion or absence of
a concrete plan to procure the required funding sufficiently in advance
of actual requirement.
Moody's could also downgrade HIAL's ratings if FFO/debt is
likely to remain below 4% on an extended basis beyond Moody's
current expectation, and which could result from (1) a significant
delay or an adverse outcome from the upcoming tariff determination,
(2) a slower than expected recovery in operating conditions, or
(3) 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
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At least one ESG consideration was material to the credit rating action(s)
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The Global Scale Credit Rating on this Credit Rating Announcement was
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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
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Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
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