Singapore, October 03, 2018 -- Moody's Investors Service has revised the outlook on GMR Hyderabad International
Airport Limited's (HIAL) corporate family rating (CFR) to negative from
stable.
At the same time, Moody's has affirmed the company's Ba1 CFR.
RATINGS RATIONALE
"The change in HIAL's rating outlook to negative reflects
the likely deterioration in its financial metrics over the next 18 months
under our base case scenario, as the company incurs additional debt
during fiscal year ending March 2020 (fiscal 2020) to part-fund
its Rajiv Gandhi International Airport (RGIA) expansion,"
says Spencer Ng, a Moody's Vice President and Senior Analyst.
Moreover, because HIAL plans to fund the balance of the capital
spending with operating cash flow, the airport's financial
profile over the expansion period will also be affected by any unexpected
volatility in its operations during the construction phase.
Based on HIAL's plan to part-fund the expansion with debt,
Moody's expects the airport's funds from operations (FFO)/debt
to trend towards the minimum rating tolerance level of 8% in fiscal
2020. Moody's also expects the weakening trend to continue
beyond this period, as incremental debt is incurred for the expansion.
"Our financial projections assume that the lower tariff outlined
in the regulator's December 2017 consultation paper will be implemented
in April 2019, and exclude any potential tariff increase from the
ongoing tariff appeal relating to the previous control period, due
to the level of uncertainty associated with this outcome and its timing,"
adds Ng.
Under Moody's base case scenario, HIAL will see a modest decrease
in revenue in fiscal 2020 due to the tariff reduction, which will
outweigh the benefits of a likely low-double digit percentage increase
in passenger traffic at the airport and put negative pressure on the company's
financial profile.
Additionally, HIAL does not currently have committed debt funding
in place for the expansion and plans to commence its fund raising process
in the second half of 2019, potentially exposing the airport to
higher funding costs if there are any unexpected challenges in its operations
or expansion, or should capital market conditions deteriorate further.
The airport has available cash and cash equivalent of INR 16 billion (as
at June 2018), which it will use as the primary source of funding
for the next 12 months.
On balance, Moody's believes HIAL's business risk profile
will be tempered until the expansion is completed, although exposure
to execution risk should remain manageable given: (1) its plan to
deliver the expansion under fixed-price turnkey contracts with
experienced contractors, and (2) GMR Infrastructure Ltd's
experience as airport developers.
HIAL has a long-term concession to operate the Rajiv Gandhi International
Airport (RGIA) in Hyderabad, which is one of the leading airports
in India by passenger traffic.
HIAL is embarking on a major expansion to increase RGIA's passenger
handling capacity to 34 million passengers per annum (mppa), which
the company expects will cost up to INR55 billion over a four-year
development period. The 34 mppa expansion supersedes a previous
plan to expand to 20 mppa at a cost of INR20-INR25 billion,
given that passenger traffic at RGIA is likely to reach 20 million in
fiscal 2019.
Key elements of the expansion include the extension of the existing passenger
terminal, a new parallel taxiway, as well as the widening
of the ramp connection from the main access roads.
HIAL's Ba1 CFR continues to consider its: (1) strong market
position and its strategic location in the city of Hyderabad, (2)
low concession revenue share payment to the government, and (3)
strong operating performance relative to its key performance targets,
as stipulated by the concession.
These credit strengths, however, are offset by: (1)
the evolving nature of the regulatory framework in India, which
has resulted in lengthy delays in tariff determination and implementation,
as well as (2) HIAL's exposure to execution risks and securing appropriate
term debt funding for the planned expansion.
Positive rating momentum is unlikely over the next 3-4 years,
because of the execution risk associated with the expansion, and
elevated financial leverage approaching the downdriver for the Ba1 rating.
The outlook on the rating could revert to stable, however,
if there is an improvement in HIAL's financial profile, which
would help sustain its FFO/debt at above 8% throughout the construction
phase. Such improvement could be the result of a favorable outcome
in the pending tariff appeal or if the non-aeronautical business
outperforms Moody's base case expectation.
Moody's could downgrade the rating if there is further evidence
that HIAL's financial metrics will fall below the level considered
appropriate for its Ba1 rating during the expansion. The financial
metrics that could indicate downward pressure on the rating include FFO
to gross adjusted debt declining below 8% on a consistent basis.
Moody's could also downgrade the rating if there are any material
missteps in implementing the expansion project, or a reduction in
aeronautical and/or non-aeronautical revenues relative to Moody's
base case expectation.
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 Airport International Limited operates one of the larger
airports under a public-private partnership model in India.
The company started commercial operations on 23 March 2008. The
airport has a current design capacity of 12 million passengers per annum.
In February 2018, GMR Airport signed a share purchase agreement
to acquire Malaysia Airports Holdings Berhad's (A3 stable) equity
interest in HIAL. Post completion, HIAL's equity will
be held by GMR Airports, the Government of India through the Airports
Authority of India, and the Government of Telangana. GMR
Airports is a subsidiary of GMR Infrastructure Ltd.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
