Singapore, June 12, 2020 -- Moody's Investors Service has confirmed Delhi International Airport
Limited's (DIAL) Ba3 corporate family rating (CFR) and senior secured
ratings.
At the same time, Moody's has confirmed DIAL's Baseline Credit Assessment
(BCA) at ba3.
The outlook on the ratings has been changed to negative from ratings under
review.
This rating action concludes the review for downgrade initiated on 25
March 2020.
Delhi International Airport Limited is the concessionaire for the Indira
Gandhi International Airport, which is located in the political
capital of India, and operates under an Operations, Management
and Development Agreement with the Airports Authority of India,
a government agency.
DIAL is undertaking a major airport expansion that will cost INR98 billion
and another 2-3 years to complete.
RATINGS RATIONALE
"The rating confirmation considers the resumption of domestic passenger
traffic on 25 May after a two-month suspension of commercial flights
in India, management's efforts to reduce operating cost and
its delayed capital spending, which will have a positive impact
on the airport's liquidity position," says Spencer Ng,
a Moody's Vice President and Senior Analyst.
The negative outlook, however, reflects material downside
risk over the next 12-18 months, given the uncertainty over
the recovery in the airport's traffic and India's weakening economic
conditions, which could complicate the airport's efforts to
secure additional funding to complete its expansion project and refinance
its USD288.75 million bond maturity in February 2022.
The spread of the coronavirus pandemic, the weakened global economic
outlook, low oil prices and asset price declines are creating a
severe and extensive credit shock across many sectors, regions and
markets. The combined credit effects of these developments are
unprecedented. The airport industry is one of the sectors most
significantly affected by the shock given its exposure to travel restrictions
and sensitivity to consumer demand and sentiment.
Given the high level of uncertainty around the trajectory of the pandemic
there are a wide range of possible outcomes, and Moody's credit
assessment considers deeper downside scenarios incorporating the risks
of a slower recovery.
A recovery in DIAL's traffic - once the situation stabilizes
- will be supported by the solid industry fundamentals in India
and its predominantly domestic-based passenger mix. However,
any near term recovery will be heavily influenced by the effects of a
weak economy, continued travel restrictions, concerns over
potential infections and further outbreaks.
"We expect the airport's operating cash flow to improve in
the next fiscal year as traffic gradually returns. However,
the capital expenditure required to complete its substantial expansion
project will likely keep DIAL's financial metrics at weak levels
with limited headroom," says Spencer Ng, a Moody's
Vice President and Senior Analyst.
Given the current industry headwinds and weak economic conditions,
the airport's operations and further planned land monetization may
not be sufficient to fully fund its capex requirement, potentially
leading to incremental debt over the expansion phase.
DIAL 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 lower traffic. That said, due
to the likely delay in construction as a result of the coronavirus lockdown
and the time required for workforce mobilization, the actual spending
profile will be spread out over a longer period, providing some
cash flow relief.
The airport regulator released its consultation paper for Delhi Airport
on 9 June [1], proposing the continuation of minimum tariffs
allowed under the Base Airport Charges (BAC) regime through to March 2024.
However, the final decision -- expected in the September quarter
-- could improve depending on the regulator's final view of
the impact of the coronavirus outbreak on passenger traffic and non-aeronautical
revenue.
Moody's base case expectation continues to assume the minimum tariff
under the BAC, due to the substantial balance of over-recovered
revenue that still needs to be cleared before the tariff can increase,
as outlined in the consultation paper.
DIAL has sufficient liquidity to sustain its operations and fund its expansion
at least through March 2021, although the airport does have a major
refinancing need in February 2022 when its USD288.75 million bond
expires. At the end of April, the airport had total cash
of close to INR1 billion and short-term investments of INR37 billion
(which include investments in mutual funds, commercial paper and
fixed deposits). The airport also has an undrawn working capital
facility of INR2 billion that is available to meet working capital requirements.
DIAL's Ba3 ratings continue to reflect (1) the airport's strategic
position and solid passenger profile, (2) the evolving regulatory
framework in India, and (3) its low profit margins due to the higher
revenue share obligation under its concession agreement.
Moody's has used its Joint Default Analysis approach for Government Related
Issuers in assessing DIAL's ratings, because the company is more
than 20% government-owned through the Airports Authority
of India, a government agency.
DIAL's Ba3 CFR combines: (1) the company's BCA of ba3, and
(2) the low likelihood of support that Moody's believes the Government
of India (Baa3 negative) will provide to DIAL in the event that extraordinary
financial support is required, resulting in the absence of uplift
support in the company's BCA.
Moody's regards the coronavirus pandemic as a social risk under its environmental,
social and governance (ESG) framework, 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 coronavirus outbreak. Nevertheless, Moody's could change
the outlook to stable if operating conditions recover to a level that
would (1) supports it ability to secure the necessary funding required
to complete the expansion and (2) allow the airport to reduce its leverage
over time.
Moody's could downgrade DIAL's Ba3 ratings if there is a delay in passenger
recovery caused by airlines defaulting, or if the airport is unable
to finalize its land monetization transaction with Bharti Realty executed
back in March 2019.
Moody's could also downgrade the ratings if: (1) the expansion project's
costs increase or it experiences material delays; (2) there is a
lack of a well-progressed plan to secure the necessary funding
to complete the expansion or a failure to secure the refinancing for its
USD288.75 million of debt maturing in February 2022.
The methodologies used in these ratings were Privately Managed Airports
and Related Issuers published in September 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1092224,
and Government-Related-Issuers Methodology published in
February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
Delhi International Airport Limited (DIAL) is the concessionaire for the
Indira Gandhi International Airport, which is located in the political
capital of India, and operates under an Operations, Management
and Development Agreement, concluded in 2006 with the Airports Authority
of India, a government agency. The concession is for a 30-year
period, and DIAL has the option to extend it for another 30 years,
subject to the company meeting defined performance criteria.
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.
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and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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REFERENCES/CITATIONS
[1] -- Citation -- AERA Consultation
Paper 15/2020-21
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the lead rating analyst and to the Moody's legal entity that has issued
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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
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
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Moody's Investors Service Singapore Pte. Ltd.
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