Singapore, March 25, 2020 -- Moody's Investors Service has today placed GMR Hyderabad International
Airport Limited's (HIAL) Ba1 corporate family rating (CFR) on review for
possible downgrade.
The outlook has been changed to rating under review from negative.
The rating action reflects the worsening coronavirus outbreak and the
increasingly stringent travel restrictions imposed both in India and globally,
including ongoing measures introduced by the Government of India (Baa2
negative).
HIAL is the concessionaire for the Rajiv Gandhi Hyderabad International
Airport (RGIA) in Hyderabad under a long term concession agreement with
the Ministry of Civil Aviation.
RATINGS RATIONALE
"The rating action reflects our expectation of a sharp decline in
passenger and aircraft traffic at Hyderabad Airport in the coming months
and the uncertainty over the timing and extent of a recovery, which
coincides with increased debt issuance as the airport enters the peak
stage of its INR55 billion expansion project," says Spencer
Ng, a Moody's Vice President and Senior Analyst.
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling 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 sector has
been one of the sectors most significantly affected by the shock given
its sensitivity to consumer demand and sentiment.
More specifically, the weaknesses in HIAL's credit profile,
including its exposure to falling passenger traffic have left it vulnerable
to shifts in market sentiment in these unprecedented operating conditions,
and HIAL remains vulnerable to the outbreak continuing to spread.
Moody's regards the coronavirus outbreak as a social risk under
its ESG framework, given the substantial implications for public
health and safety. Today's action reflects the impact on
HIAL of the breadth and severity of the shock, and the broad deterioration
in credit quality it has triggered.
All of HIAL's aeronautical revenues and a large portion of its non-aeronautical
revenues are closely linked to the airport's passenger traffic volumes
and aircraft movements. As such, the expected traffic decline
will lead to a sharp reduction in the airport's revenue and cash
flow over the course of fiscal 2021 (ending 31 March).
Whilst the current environment is unpredictable, Moody's expects
a recovery in airport traffic to commence in the second half of the year.
Nevertheless, Moody's expects that the airport's traffic
levels for the next two to three years will be lower as a result of the
coronavirus.
"Although HIAL was well-positioned financially prior to the
outbreak, its financial metrics will materially weaken under our
base case scenario after the implementation of a proposed 50% tariff
cut in the next fiscal year. Coupled with the reduced operating
cash flow as a result of the outbreak, we expect HIAL's funds
from operations (FFO) to debt to fall below the minimum tolerance level
set for its Ba1 rating over the next 12 months," adds Ng.
The vast majority of the expansion works are being carried out under two
key contracts with a fixed construction term and prices with experienced
and reputable contractors. Whilst such a structure reduces the
risk of costs overrunning or potential delays, it also limits the
airport's ability to scale down the project to preserve its financial
profile in response to a downturn and could expose the airport to counterparty
risk should the contractors' credit quality materially deteriorate.
That said, HIAL does have sufficient liquidity on hand, which
mainly comprises cash and investment in short term securities, that
should allow it to continue funding its expansion through to the end of
calendar 2020. Moody's expects HIAL to incur incremental
debt to complete its INR55 billion airport expansion and other development
projects - such as the Hyderabad metro extension - over
the next two to three years.
HIAL's medium-term financial profile could benefit from a
positive tariff decision in the next control period, on the back
of (1) a material growth in its regulated asset base after the inclusion
of capital expenditure incurred for the airport expansion, and (2)
a true-up of revenue lost due to lower-than-expected
traffic caused by the coronavirus outbreak. However, tariff
decisions and implementation have frequently been delayed in the past,
and which -- if repeated -- would affect the timeliness of any
tariff increase. HIAL's next control period is scheduled
to start in April 2021.
Whilst not factored into Moody's base case scenario, HIAL's
financial profile could further improve if there is a favorable outcome
from its ongoing appeal against the regulated tariffs set in previous
control periods.
The rating review will consider (1) the airport's financial profile
over the next two to three years taking into account the evolving situation
with the outbreak, (2) the outcome of the tariff appeal process
and timing of the upcoming tariff determination, (3) the airport's
liquidity position over the next 12 to 18 months, (4) any increase
in the airport's exposure to counterparty risk from key airlines
as a result of the outbreak and (5) HIAL's countermeasures should
the construction contractor experience distress.
HIAL's Ba1 CFR continues to reflect the airport's established
market position in its catchment area, its predominantly domestic
origin and destination passenger mix, which could lessen -
but not leave it immune to - the challenges introduced by the coronavirus
outbreak and support a gradual recovery of traffic once the situation
stabilizes.
Given that the rating is placed on review for downgrade, Moody's
currently does not envision any upward rating pressure. The rating
could be confirmed if there is clear evidence that the impact from the
outbreak is easing and the airport is able to maintain appropriate financial
metrics for its Ba1 rating. Such an improvement would most likely
require a favorable outcome from the pending tariff appeal and the upcoming
tariff determination process.
On the other hand, Moody's could downgrade HIAL's Ba1 rating if
the traffic decline in the coming months exceeds Moody's base case
assumptions, or if there is any evidence of liquidity stress,
which could manifest from a worsening counterparty exposure.
Additionally, Moody's could downgrade HIAL's rating if there is
further evidence that the company's FFO/debt will fall below 8%
on a consistent basis during the expansion project.
Moody's could also downgrade the rating if there are 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. 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 company started commercial operations on 23 March 2008.
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 (Baa2 negative) through the Airports Authority
of India (13%), and the Government of Telangana (13%).
GMR Airports is a subsidiary of GMR Infrastructure Ltd.
REGULATORY DISCLOSURES
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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
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Singapore
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