Singapore, August 25, 2022 -- Moody's Investors Service has today changed the outlook on GMR Hyderabad International Airport Limited (HIAL) to stable from negative.
At the same time, Moody's has affirmed HIAL's Ba2 corporate family rating (CFR) and Ba2 senior secured USD bond rating.
HIAL has a long-term concession to operate the Rajiv Gandhi International Airport (RGIA) in Hyderabad under a public-private partnership model. The airport is undertaking a major airport expansion that will cost INR55 billion (excluding interest during construction), with completion targeted before the end of fiscal 2023, which ends in March 2023.
"The outlook change and rating affirmation reflect our expectation that HIAL's funds from operations (FFO) to debt will strengthen above the Ba2 rating tolerance level of 4% in the next 12-18 months, as well as the airport's reduced exposure to execution risk associated with its expansion, given the progress to date and impending completion," says Spencer Ng, a Moody's Vice President and Senior Credit Officer.
RATINGS RATIONALE
HIAL's ratings reflect the airport's established market position in its catchment area, which has a predominantly domestic origin and destination passenger mix, the fundamentally supportive regulatory environment in India, and the favorable industry dynamic in India, which will underpin traffic growth over the next decade.
The expected improvement in HIAL's FFO/debt under Moody's base case scenario will be driven by revenue increases on the back of increasing passenger traffic, approved tariff hikes and the expected growth in non-aeronautical revenue attributable to the airport expansion.
As of June 2022, monthly domestic traffic is already very close to 2019 levels. Whilst international traffic is at around 80% of 2019 levels, Moody's expects it to fully recover in the next fiscal year. The projected growth over the next 12-18 months reflects the strong underlying demand for air travel in India and which will likely outweigh the dampening effects of slower economic growth and high fuel prices.
Rising passenger traffic will have a positive impact on HIAL's aeronautical and non-aeronautical revenue, including retail, food and beverage and duty-free businesses, which are closely tied to passenger movement at the terminal. At the same time, the airport's non-aeronautical businesses will also benefit from the additional commercial floor space and upgrades to existing facility delivered as part of the expansion.
The change in outlook also reflects HIAL's reduced exposure to execution and funding risk associated with its expansion, as a result of the material progress that has been made and the funds available at HIAL to cover the remaining capital costs. According to its management, the expansion is 75% completed as of June 2022 and is on track to be completed on budget before the end of fiscal 2023.
As of the end of June 2022, HIAL had cash balance and short-term investments of around INR22 billion, which will be sufficient to meeting its operating cash requirement and the cost to complete its expansion, assuming that HIAL will be able to roll over its working capital facilities in late 2022. Moody's base-case projections have not factored in the repayment of a INR2 billion loan HIAL has extended to its promoter that matures in August 2023.
Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.
The stable rating outlook reflects Moody's expectation that the expansion will be completed before the end of fiscal 2023 and that HIAL's financial metrics will improve to a level consistent with its rating within the next 12-18 months as a result of projected revenue growth.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade HIAL's ratings if it can maintain the airport's solid operating performance and sustainably improves its financial profile. Credit metrics Moody's would consider for an upgrade include FFO/debt improving above 8%-9% on a sustained basis and retained cash flow/debt remaining above 3%-4%.
On the other hand, Moody's could downgrade HIAL's ratings if there is any indication of liquidity stress or if its FFO/debt remains below 4% on a sustained basis after fiscal 2024, which could arise from a slower-than-expected recovery in passenger traffic. The ratings could also be downgraded if there is a significant increase in related-party transactions.
The principal methodology used in these ratings was Privately Managed Airports and Related Issuers published in September 2017 and available at https://ratings.moodys.com/api/rmc-documents/63380. Alternatively, please see the Rating Methodologies page on https://ratings.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 India's leading airports in terms of passenger traffic.
The airport has a current design capacity of 12 million passengers per annum (MPPA). Capacity will go up to 34 MPPA when the current expansion is complete. Equity in the company is held by GMR Airports (63%), Malaysia Airports Holdings Berhad (11%, A3 stable), the Government of India (Baa3 stable) 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
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Spencer Ng
VP - Senior Credit Officer
Project & Infrastructure Finance
Moody's Investors Service Singapore Pte. Ltd.
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Terry Fanous
MD-APAC Project & Infrastructure Finance
Project & Infrastructure Finance
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