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Rating Action:

Moody's confirms Delhi Airport's Ba3 ratings; outlook negative

12 Jun 2020

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.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social 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. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

REFERENCES/CITATIONS

[1] -- Citation -- AERA Consultation Paper 15/2020-21

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.

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
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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