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Rating Action:

Moody's affirms Malaysia Airports Holdings at A3

29 Jan 2015

Singapore, January 29, 2015 -- Moody's Investors Service has affirmed the A3 issuer rating of Malaysia Airports Holdings Berhad (MAHB) with a positive rating outlook. The rating and outlook are in line with the Government of Malaysia's A3 sovereign rating and positive rating outlook.

RATINGS RATIONALE

MAHB's A3 rating reflects the application of Moody's rating methodology for government-related issuers. Using the methodology, Moody's combined: (1) the company's BCA of baa2; and (2) incorporated a two-notch uplift based on Moody's joint default analysis approach.

The two-notch uplift reflects Moody's assessment that MAHB will receive support from the Government of Malaysia in a distressed situation.

MAHB's positive rating outlook reflects Moody's positive rating outlook for the Malaysian sovereign, as well as MAHB's important policy role and contributions to Malaysia's tourism, export and aviation industries.

At the same time, Moody's has lowered MAHB's baseline credit assessment (BCA) to baa2 from baa1, reflecting the company's weaker standalone credit quality, which in turn is due to the completion of its acquisition in December 2014 of a 40% equity stake in Istanbul's second-largest airport by passenger traffic, Sabiha Gokcen International Airport (SGIA).

The acquisition brings MAHB's total stake in SGIA to 100%.

The lowering of MAHB's BCA to baa2 reflects Moody's assessment that MAHB's financial metrics will weaken, following the full consolidation of SGIA, now that MAHB's acquisition of the 40% equity stake in SGIA has completed.

While the acquisition will be fully funded through a rights issue, the transaction is credit negative to MAHB because the company will be assuming SGIA's relatively high debt burden.

Moody's expects that the full consolidation of SGIA into MAHB will result in a 30% increase in adjusted debt. Consequently, MAHB's pro-forma funds from operations/debt will likely deteriorate to 8.6% from our initial expectations of 10.5%, and its interest coverage will worsen to 2.3x from 2.7x for the financial year ending 31 December 2014.

Moody's previously assessed MAHB's credit profile based on pro-rated results from SGIA.

Moody's notes that while SGIA's debt burden is high, the company — with the help of a EUR500 million corporate guarantee from MAHB — has refinanced the debt it raised during the global financial crisis at lower interest rates. The refinancing will result in around EUR20-EUR25 million of interest savings every year.

SGIA has also achieved higher passenger volumes; a situation which reduces its loss position.

SGIA achieved a significant 34% compound annual growth in passenger volumes during 2008-13. As a result, we expect that the company will almost breakeven in the financial year ending 31 December 2015.

As for MAHB, Moody's points out that the company's operational performance at its Malaysian airports will support its revenue growth and financial profile.

MAHB recorded passenger traffic growth of 5% for the financial year ended 31 December 2014 despite the recent series of airline disasters in 2014 involving its key airline operators. Moody's expects passenger traffic growth to fall to 1.5% to 3.0% in 2015.

Given MAHB's high BCA of baa2, under Moody's joint default analysis approach for government-related issuers, an upgrade of the Malaysian sovereign's rating could lead to an upgrade of MAHB's rating, provided there is no change in the company's fundamental credit profile or relationship with the government.

Additionally, the BCA could be raised if the company: (1) records significant traffic growth in klia2 and SGIA; (2) secures a material extension to its concession for the terminals in Kuala Lumpur and/or (3) improves its funds from operations/debt to above 14% and its interest coverage to above 5x on a sustained basis.

Downgrade pressure on MAHB's rating is unlikely, given the positive outlook. However, the company's rating could be downgraded if the Government of Malaysia's rating is downgraded. Nevertheless, Moody's believes that the sovereign rating is unlikely to be downgraded at least over the next 12 months.

On the other hand, MAHB's BCA could be lowered further if the company: (1) experiences sustained passenger traffic declines or stagnation; and/or (2) makes significant acquisitions, or its capex increases materially for investments overseas or in non-airport related businesses.

Credit metrics that would point towards a downgrade of its BCA include funds from operations/debt below 6% on a sustained basis.

The methodologies used in this rating were Privately Managed Airports and Related Issuers published in December 2014, and Government-Related Issuers published in October 2014. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Malaysia Airports Holdings Berhad (MAHB) is a near-monopoly airport operator in Malaysia. It operates five international, 16 domestic and 18 short take-off and landing airports in the country. It also operates the Sabiha Gokcen International Airport in Turkey and has airport investments in India.

The key contributor to its profits and cash flows is the Kuala Lumpur International Airport (KLIA), which opened in 1999 and handled about 48.9 million passengers in 2014. MAHB also operates ancillary businesses in locations surrounding the airport in Kuala Lumpur, including agricultural plantations and hotel accommodation.

MAHB listed on the Kuala Lumpur Stock Exchange in 1999. As at 31 December 2014, the company was 36.6% owned by Khazanah Nasional, an investment holding arm of the Government of Malaysia (A3 positive), and 24.5% owned by the Malaysian government-related entities, Employees Provident Fund — with a 13.0% stake — and Skim Amanah Saham Bumiputera, which owned an 11.5% stake.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Ray Tay
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
SUBSCRIBERS: (852) 3551-3077

Patrick Mispagel
Associate Managing Director
Project & Infrastructure Finance
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077

Moody's affirms Malaysia Airports Holdings at A3
No Related Data.
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