Singapore, June 12, 2020 -- Moody's Investors Service has downgraded GMR Hyderabad International
Airport Limited's (HIAL) corporate family rating (CFR) to Ba2 from
Ba1.
At the same time, the outlook on the rating has been changed to
negative from rating under review.
The rating action concludes the review for downgrade initiated on 25 March
2020.
HIAL has a long-term concession to operate the Rajiv Gandhi International
Airport in Hyderabad under a public-private partnership model.
HIAL is undertaking a major airport expansion that will cost INR55 billion
and take 2-3 years to complete.
RATINGS RATIONALE
"The downgrade reflects the weak operating conditions associated
with the spread of the coronavirus pandemic," says Spencer
Ng, a Moody's Vice President and Senior Analyst.
While domestic travel recently resumed, the rating was already weakly
positioned. The spread of the pandemic, along with HIAL's
active capital expenditure plan, means that its credit profile is
no longer consistent with the previous rating.
Moody's expects HIAL's funds from operations (FFO) / debt
to weaken to the mid-single digit percentage range over the next
2-3 years, which would position the airport at the Ba2 rating
range.
The decline in HIAL's financial metrics is primarily driven by (1)
the tariff cut implemented in April 2020, (2) the additional debt
HIAL will need to incur to complete its airport expansion, as well
as (3) the reduction in airport traffic as a result of the coronavirus
outbreak, which will lower the airport's non-aeronautical
revenue.
The negative outlook reflects these challenges, combined with downside
risks associated with (1) the uncertainty associated with the timing and
profile of a traffic recovery and (2) a delay in the implementation of
new tariffs for the upcoming control period.
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 HIAL's traffic - once the situation stabilizes
- will benefit from the strong industry fundamentals in India and
HIAL's predominantly domestic-based passenger mix,
however, any near term recovery will be heavily influenced by the
effects of a weak economy, the continued travel restrictions,
concerns over potential infections and further outbreaks.
Moody's financial projections have factored in (1) an increase in
HIAL's aeronautical tariff due to growth in its regulated asset
base after incorporating its expansion-related capital expenditure,
(2) the deferral of capital spending as a result of delays in construction
caused by the lockdown, but exclude any potential upside that could
result from a favorable outcome from its on-going appeal.
Tariff decisions and implementations have frequently been delayed in the
past, and which -- if repeated -- will likely
keep HIAL's FFO/debt metrics at a very weak level, with the
potential to complicate its efforts to secure additional capital to complete
its expansion. The extent of the tariff increase will also be affected
by the regulator's decision over the final capital expenditure for the
expansion and passenger traffic over the next control period.
HIAL has sufficient liquidity to fund its operations and expansion at
least through March 2021, including cash on hand of INR8 billion
as at April 2020 and short term investments of INR9 billion. Over
the longer term, the airport will likely require external financing
to manage its expansion. Moody's notes that HIAL may have
some flexibility in managing its expansion program over time.
HIAL's Ba2 CFR continues to reflect the airport's established market position
in its catchment area, which has a predominantly domestic origin
and destination passenger mix.
Moody's regards the coronavirus pandemic as a social risk under its environmental,
social and governance framework (ESG), given the substantial implications
for public health and safety.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
An upgrade of the ratings is unlikely, given the negative outlook
and coronavirus outbreak. Nevertheless, Moody's could change
the outlook to stable if (1) the new tariff is implemented in line with
Moody's base case expectation, and (2) HIAL's operating
conditions recover to a level that would allow the airport to maintain
its FFO/debt at the mid-single digit percentage range.
On the other hand, Moody's could further downgrade HIAL's Ba2 rating
if there is any evidence of liquidity stress; or there is further
evidence that the company's FFO/debt will fall below 4% on a consistent
basis during the expansion project. This could result from (1)
a material delay or an adverse outcome from the upcoming tariff determination,
(2) a key domestic airline defaulting, or (3) material missteps
in the implementation of the expansion project.
The principal methodology used in this rating 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 this methodology.
GMR Hyderabad International Airport Limited has a long-term concession
to operate the Rajiv Gandhi International Airport in Hyderabad under a
public-private partnership model. The airport is one of
the leading airports in India by passenger traffic.
The airport has a current design capacity of 12 million passengers per
annum. Equity in the company is held by GMR Airports (63%),
Malaysia Airports Holdings Berhad (11%, A3 negative),
the Government of India (Baa3 negative) through the Airports Authority
of India (13%), and the Government of Telangana (13%).
GMR Airports is a subsidiary of GMR Infrastructure 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
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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
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.
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