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Rating Action:

Moody's assigns first-time Ba1 rating to GMR Hyderabad International Airport Limited

10 Oct 2017

Singapore, October 10, 2017 -- Moody's Investors Service has assigned a first-time corporate family rating of Ba1 to GMR Hyderabad International Airport Limited (HIAL).

The outlook for the rating is stable.

HIAL has a long term concession to operate Hyderabad airport, which is one of the leading airports in India.

RATINGS RATIONALE

"The Ba1 corporate family rating primarily reflects HIAL's strong market position and its strategic location in the city of Hyderabad, which is India's fourth most populous city and a major economic center", says Abhishek Tyagi, a Moody's Vice President and Senior Analyst.

These factors position HIAL well to benefit from continued growth in travel over the next 2-3 years.

"HIAL's credit profile is also underpinned by its low business risk due to low concession revenue share payment to the government", Tyagi says, adding "The airport's core aeronautical revenue stream is regulated on a price cap basis and, as such, is not exposed to the risk of fluctuations in passenger volumes, thereby providing key rating support".

However, the rating is challenged by 1) the limited track record of India's regulatory framework and 2) HIAL's significant capital expenditure to expand its capacity, which will elevate financial leverage and raise execution challenges.

"Reflecting its strong market position, we expect the airport to benefit from increased travel demand in the country as income grows, particularly because an increasing proportion of the airport's revenues - being non-aeronautical revenues -- will be driven by rising passenger volumes", adds Tyagi.

HIAL's credit profile benefits from its location in the city of Hyderabad, which is the fifth most populous city of India with a population of 6.7 million. Hyderabad is also a major economic center and is one of the key information technology (IT) and information technology enabled services (ITeS) hubs of India -- with nearly all global and local majors present in the country. The city is also one of the biggest pharmaceutical and biotechnology hubs.

HIAL has exhibited solid operating performance relative to its key performance targets, as stipulated by the concession. The Airports Authority of India has the right to terminate the concession if HIAL fails to meet its operating performance targets for a sustained period. However, we see the risk of termination as being remote, given HIAL's solid operating track record, which we expect to continue, notwithstanding its upcoming expansion program.

HIAL has one of the lowest concession fees in India, at 4% of the gross revenues -- which can be passed on as a part of operating expenses as per the regulations. This compares with 45.99% and 38.7% revenue share for Delhi and Mumbai airports respectively

The regulatory regime for the airport sector is still quite new and is yet to establish a stable and predictable framework. Further track record of consistent application of regulated settings will provide support for HIAL's credit profile.

HIAL has a significant expansion programme (in the range of INR22-25 billion) which will be implemented over the next four years. While the project is indicative of the passenger growth experienced by HIAL, the expansion will challenge its financial metrics, although from a solid base. We expect financial leverage -- as measured by funds from operations to gross adjusted debt-- to worsen to 9-10% over FY2019-FY2020 (fiscal year ending 31 March) as the company executes its capex plans to increase its terminal capacity to 20 million passengers annually.

The rating factors in the effectiveness of the ring fence between HIAL and its shareholders under the transaction documents which insulates HIAL's credit profile from that of its shareholders.

The Ba1 rating also factors in Moody's expectation that HIAL will be issuing bonds shortly, the proceeds of which will be used to refinance the existing foreign and domestic currency bank term loan facilities.

The stable outlook reflects HIAL's strong liquidity and Moody's view that the company's financial profile over the next 12-18 months is manageable at the Ba1 rating level.

Upward rating movement in the near term is unlikely, given the planned expansion program and the uncertainty associated with the regulatory process. Over time, the ratings can be upgraded if HIAL demonstrates an ability to maintain robust financial metrics, including funds from operations /gross adjusted debt above 18-20% and debt service coverage exceeding (DSCR) 2x on a consistent basis.

The ratings could be downgraded if there is a deterioration in financial leverage that is beyond our base case expectation, and which could be due to a larger expansion program, or missteps in implementing the expansion project, or a reduction in aeronautical and/or non-aeronautical revenues relative to our base case expectation. The financial metrics that could indicate a downward pressure on the ratings include funds from operations to gross adjusted debt declining below 8% and/or the DSCR below 1.4x on a consistent basis.

The principal methodology used in this rating was Privately Managed Airports and Related Issuers published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

HIAL is one of the larger airports to be operationalized under the PPP model. HIAL started commercial operations from 23rd March 2008. The airport has a current design capacity of 12 million passengers per annum and 150,000 tons of cargo handling capacity per annum. The airport pays Government of India (GOI) a fee of 4% of Gross Revenue annually as per the terms specified in the Concession Agreement which ends in 2038. HIAL's shareholders are GMR Airports (63%), Malaysia Airports Holdings Berhad (A3, negative - 11%), the Government of India through Airports Authority of India (AAI, 11%), and Government of Telangana (13%). GMR Airports is a subsidiary of GMR Infrastructure Ltd

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.

Abhishek Tyagi
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

No Related Data.
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