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I AGREE
25 Mar 2020
Singapore, March 25, 2020 -- Moody's Investors Service has revised the outlook on Malaysia Airport
Holdings Berhad's (MAHB) rating to negative from stable.
At the same time, Moody's has affirmed MAHB's A3 issuer
rating and baa3 baseline credit assessment (BCA).
MAHB is a near-monopoly airport operator in Malaysia (A3 stable),
operating five international, 16 domestic and 18 short take-off
and landing airports in the country. It also operates the Sabiha
Gokcen International Airport (SGIA) in Istanbul, Turkey (B1 negative)
and has an airport investment in India (Baa2 negative).
RATINGS RATIONALE
MAHB's A3 issuer rating reflects the company's baa3 BCA and a three-notch
uplift based on Moody's Joint Default Analysis approach for Government-Related
Issuers. The three-notch uplift reflects Moody's assessment
of a high likelihood that MAHB will receive extraordinary financial support
from the Government of Malaysia in a distress situation, given the
government's sole ownership of MAHB and capacity to provide support,
and the strategic importance of the airport sector to the country.
"The change in outlook to negative reflects our expectation of a
sharp decline in passenger and aircraft traffic volumes at MAHB's
airports in the coming months as a result of the worsening coronavirus
outbreak, and a consequent decline in MAHB's credit metrics
over the next 12-18 months," says Spencer Ng,
a Moody's VP 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 MAHB'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 MAHB remains vulnerable to the outbreak continuing to spread.
Moody's regards the coronavirus outbreak as a social risk under
our ESG framework, given the substantial implications for public
health and safety. Today's action reflects the impact on
MAHB of the breadth and severity of the shock, and the broad deterioration
in credit quality it has triggered.
Along with other governments, the Government of Malaysia has implemented
unprecedent travel restrictions that will lead to a sharp decline in traffic
at MAHB's airports.
The negative outlook also reflects the airport's exposure to elevated
counterparty risks given the severe stress being experienced by key airlines
serviced by its airports.
"Although the environment is unpredictable, we assume that
there will be a gradual recovery at MAHB's airports commencing in
the second half of 2020, although traffic level will remain well
below previous levels," adds Ng.
The bulk of MAHB's revenues are closely linked to airport traffic,
Consequently, Moody's expects the airport's financial
leverage, as measured by funds from operations (FFO) to debt,
to fall below the minimum tolerance level of 7%-8%
set for its A3 rating in 2020, with uncertainty over the pace and
timing of a recovery in the metrics.
MAHB's ability to withstand the near-term impact from the
outbreak will be supported by its implementation of countermeasures,
such as deferral of non-essential capital spending, suspension
of dividend payment and cost saving initiatives.
MAHB has limited liquidity to withstand an extended disruption,
given forthcoming debt maturities of around MYR1.2 billion of debt
(including a MYR1 billion Sukuk due in August 200). MAHB's cash
and cash equivalents amounted to around MYR2 billion at the end of February
2020.
MAHB's baa3 BCA is underpinned by (1) its dominant position as a
near-monopoly airport operator in Malaysia; (2) its favorable
concession agreements that protect the commercial viability of the airport;
and (3) its moderately high solid financial leverage prior to the outbreak.
The outlook on MAHB's rating could be revised to stable if passenger
traffic recovers, leading to FFO/debt rising above 7%-8%
range on a sustained basis.
On the other hand, Moody's could downgrade MAHB's A3 issuer
rating if its BCA is downgraded, which in turn could occur if (1)
there is a sustained decline in MAHB's FFO/debt to below 7%-8%,
or to FFO interest coverage falling below 2.5x (2) there are adverse
changes to the terms of the concession agreement or tariff regime.
Moody's could also downgrade the A3 issuer rating if Malaysia's
sovereign rating is downgraded or Moody's expects there is a reduced
likelihood of extraordinary support by the government.
The methodologies used in these ratings were Privately Managed Airports
and Related Issuers published in September 2017, and Government-Related
Issuers Methodology published in February 2020. Please see the
Rating Methodologies page on www.moodys.com for a copy of
these methodologies.
Malaysia Airport Holdings Berhad (MAHB) listed on the Kuala Lumpur Stock
Exchange in 1999. As of March 2020, the company was 33.2%
owned by Khazanah Nasional—an investment holding arm of the Government
of Malaysia—and 14.5% owned by the Malaysian government-related
entities, Employees Provident Fund, which had a 13.6%
stake, and Permodalan Nasional Berhad, which had a 0.93%
stake.
The key contributor to its profits and cash flows is Kuala Lumpur International
Airport, which opened in 1999 and handled about 62.3 million
passengers in 2019. SGIA handled 35.5 million passengers
in 2019.
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.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
No Related Data.
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