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Rating Action:

Moody's downgrades Delhi International Airport ratings to B1; outlook negative

11 Jun 2021

Singapore, June 11, 2021 -- Moody's Investors Service has downgraded Delhi International Airport Limited's (DIAL) corporate family rating (CFR) and senior secured ratings to B1 from Ba3.

Moody's has also downgraded DIAL's Baseline Credit Assessment (BCA) to b1 from ba3.

At the same time, Moody's has downgraded Cliffton Limited's senior secured bond rating to B1 from Ba3.

The outlook on the ratings is negative.

"The rating downgrade reflects the adverse impact of reduced passenger traffic and airport revenue in the current fiscal year ending March 2022, due to the surge in daily infection numbers since late March. We believe the consequent reduction in revenue will lead to additional debt being required to complete the airport's expansion and prolong the recovery in DIAL's financial metrics to a level consistent with a Ba rating," says Spencer Ng, a Moody's Vice President and Senior Analyst.

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 with the Airports Authority of India, a government agency.

Cliffton Limited is an orphan special-purpose vehicle established to facilitate a USD bond issuance. Proceeds from the transaction were used to subscribed to INR non-convertible debentures issued by DIAL. DIAL does not have any equity interest or management control in Cliffton Limited.

RATINGS RATIONALE

The negative outlook captures downside risks over the next 12-18 months, given the material uncertainty in the recovery of India's passenger traffic, which will be heavily influenced by when travel restrictions are lifted and the successful roll-out of vaccines as outlined by the government.

Passenger traffic at the airport had likely fallen by more than 60% in May from the February 2021 level, based on reported daily traffic figures. Given a large majority of DIAL's revenue is linked to airport traffic, Moody's expects revenue to fall in line with the drop in passenger numbers.

Whilst pandemic-driven revenue declines are not uncommon amongst rated airports, DIAL has limited capacity to offset reduced cash flow by cutting dividends or deferring its capital expenditure in a meaningful way, under currently announced plans. As such, Moody's expects the airport to need additional debt -- relative to previous forecasts - in lieu of the operating cash flow lost due to the second coronavirus wave, to complete its INR98 billion expansion.

Moody's expects DIAL's funds from operations (FFO) to remain negative for the next 12 months after factoring in capitalized interest. FFO would likely remain negative until after completion of the airport expansion and implementation of higher tariffs after the next regulatory determination. Moody's projections have not factored in any upside that might result from further land monetization transactions or from the cancellation of revenue share payments that may arise from an on-going arbitration or other unannounced initiatives.

Although revenue should gradually recover in line with passenger traffic, the projected growth under Moody's base-case scenario is unlikely to be sufficient to cover rising interest expenses (including capitalized interest) as the airport draws down from its lease arrangement or other debt to fund the expansion over the next 2-3 years. This is particularly so after considering DIAL's obligation to share 45.99% of its revenue with Airports Authority of India (AAI) under its concession agreement.

Factoring the proceeds from its USD450 million bond issuance in March, DIAL has a solid liquidity profile that is likely to cover its operating and financing costs, as well as planned capital spending for the next 12 months. As of the end of March, the airport had total liquidity, including both cash and short-term investment, of close to INR50 billion. Some of the amount will repay its USD288.75 million bond expiring in February 2022, including around USD105 million of prepayment made in April 2021.

The airport's liquidity could further benefit from upfront security deposits associated with its 2019 land monetization transaction with Bharti Reality upon completion of the transaction. According to the company, all required approvals for the transaction have now been secured.

The airport also has good access to capital markets, as indicated by its successful USD450 million issuance via Cliffton Limited in March 2021.

DIAL's B1 rating continues to recognize the strong market position of Indira Gandhi International Airport (IGIA). IGIA is India's busiest airport and a domestic and international gateway. Its strategic importance supports a gradual recovery in DIAL's passenger traffic as the pandemic subsides.

Despite the near-term uncertainties, the availability of effective vaccines that can be rolled out over time and the underlying demand as indicated by the steady recovery in domestic travel prior to the second wave, will eventually support the recovery in passenger traffic to pre-pandemic levels. Moody's traffic scenarios assume that passenger traffic will only return to pre-pandemic levels in 2023 or 2024.

The airport's credit profile also factors in its regulated aeronautical revenue stream, which supports DIAL's long-term commercial viability. However, the airport will not see any near-term support from higher tariffs based on the latest tariff decision for the control period through to end March 2024.

The rating also considers the following environmental, social and governance (ESG) factors.

The coronavirus pandemic is a social risk event, given the substantial implications for public health and safety in Delhi, and the risk of the continued spread of the virus within the state. Due to the pandemic, passenger traffic and airport revenue fell by 66% and around 40%, respectively, in fiscal 2021.

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 AAI, a government agency.

DIAL's B1 CFR combines (1) the company's BCA of b1, and (2) the low likelihood of support that Moody's believes the Government of India (Baa3 negative) will provide to DIAL in times of need, resulting in the absence of uplift support in the company's BCA.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade of the B1 ratings is unlikely over the next 12-18 months, given the negative outlook and the ongoing pandemic. Nevertheless, Moody's could change the outlook to stable if (a) DIAL's operating performance recovers sufficiently, or if (b) the airport can secure funding from alternative sources that would reduce the additional debt needed for the expansion, enabling it to reduce its leverage on a more sustainable basis over time, relative to its rating level.

Moody's could downgrade the B1 ratings if there are signs of liquidity stress, or if there are indications that a recovery in DIAL's metrics would be materially delayed. Such delays could be the result of (1) higher costs or significant delays of the expansion project; or (2) deteriorating operating conditions, including a material delay in India's coronavirus vaccination rollout.

The principal methodology used in rating Delhi International Airport Limited was 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. The principal methodology used in rating Cliffton Limited was Privately Managed Airports and Related Issuers published in September 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1092224. 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.

Cliffton Limited, which was incorporated in Mauritius in December 2020, is held by a trust. DIAL has no ownership interest in, or control over, Cliffton Limited.

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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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: 61 2 9270 8141
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
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Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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