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Rating Action:

Moody's changes outlook on Malaysia Airports Holdings to negative

27 Jul 2016

Singapore, July 27, 2016 -- Moody's Investors Service has affirmed the A3 issuer rating of Malaysia Airports Holdings Berhad (MAHB) and changed its outlook to negative from stable.

Issuer: Malaysia Airports Holdings Berhad

Ratings Affirmed:

.... Issuer Rating, Affirmed at A3

RATINGS RATIONALE

The change in outlook to negative principally reflects heightened operating challenges for MAHB's wholly owned subsidiary, Sabiha Gokcen International Airport (SGIA, unrated), which owns and operates the second largest airport in Istanbul, Turkey.

"We expect SGIA to experience a material decline in passenger traffic growth in the next 12-18 months, following the coup attempt that ended on 16 July, as well as the terrorist attacks that occurred earlier this year," says Ray Tay, a Moody's Vice President and Senior Analyst.

"As such, growth in passenger traffic at SGIA could decline to low single-digits for 2016 and potentially 2017, and international travel, in particular, will likely be hit," says Tay.

"Passenger service fees for international passengers are much higher than those for domestic passengers," adds Tay.

The expected weakness in the Turkish operations would be occurring at a time when MAHB's Malaysia operations are experiencing modest growth following the series of airline disasters that occurred in 2014 as well as the completion of route rationalization by Malaysia Airlines Berhad in 2016.

Moody's expects passenger traffic at the Malaysian operations to grow by low to mid-single digit in 2016 and 2017, but to improve after that period.

Previously, traffic growth at SGIA -- which was at least in the high teens over the past two years -- provided a mitigant against the slow recovery in passenger traffic growth at MAHB's operations in Malaysia.

"For these reasons, we lowered the BCA to baa3 from baa2 reflecting our expectation of a weaker financial profile over the medium term compared to previous expectation," says Tay.

The negative outlook reflects the high degree of uncertainty over the next 12 months associated with passenger growth at SGIA.

MAHB's A3 issuer 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 baa3; and (2) a three-notch uplift based on Moody's joint default analysis approach.

The three-notch uplift reflects Moody's assessment that MAHB will receive support from the Government of Malaysia (A3 stable) in a distressed situation.

An upward rating trend is unlikely, given that MAHB's A3 rating is at the same level as the sovereign rating for the Government of Malaysia and the negative outlook on MAHB's rating.

Nevertheless, the outlook could be changed to stable if the company: (1) records traffic growth of at least mid-single digit at its Malaysian airport operations, and high single-digit at SGIA and/or (2) improves its adjusted funds from operations (FFO)/debt to above 9-12% and its FFO interest coverage to above 3.15x on a sustained basis.

Additionally, the BCA could be raised to baa2 if MAHB demonstrates an ability to generate free cash flow (operating cash flow less dividends and capital expenditure) on a consistent basis.

MAHB's rating could be downgraded if the Government of Malaysia's rating is downgraded.

MAHB's rating could also be downgraded if the company: (1) experiences a sustained decline in passenger traffic growth below the levels stated in the above guidance on what could revert the rating outlook to stable; and/or (2) makes significant acquisitions, or if there is a material increase in capital expenditure that is more than expected for its non-airport-related businesses or for its overseas investments.

Credit metrics indicative of a rating downgrade include adjusted FFO/debt and FFO interest coverage consistently declining below 7% and 2.5%, respectively.

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 Rating Methodologies 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 an airport investment in India (Baa3 positive).

The key contributor to its profits and cash flows is Kuala Lumpur International Airport, which opened in 1999 and handled about 48.9 million passengers in 2015. SGIA handled 28.3 million passengers in 2015.

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 of 30 June 2016, the company was 36.7% owned by Khazanah Nasional—an investment holding arm of the Government of Malaysia—and 23.9% owned by the Malaysian government-related entities, Employees Provident Fund, which had a 12.4% stake, and Skim Amanah Saham Bumiputera, which had 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 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.

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

Terry Fanous
MD-Public Proj & Infstr Fin
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

No Related Data.
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