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.
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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
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Spencer Ng
Vice President - Senior Analyst
Project & Infrastructure Finance
Moody's Investors Service Singapore Pte. Ltd.
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Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
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