India Ratings downgrades Mumbai International Airport term loans

Indian Ratings flags erosion in liquidity, places the term loans under watch with negative implications

India Ratings (Ind-Ra) has cut rating for GVK group backed Mumbai International Airport Private Ltd’s (MIAL’s) term loans from "AA-" to "A+" on erosion in built-up liquidity caused by factors like delays in real estate monetisation.

The rating action also reflects higher than estimated capital expenditure and higher-than-projected equity injections in Navi Mumbai International Airport Private Limited (NMIAL). MIAL is promoter of upcoming New Mumbai international airport.

Ratings have been placed under "watch with negative" (RWN) implications. MIAL was yet to respond to queries sent by Business Standard.

India Ratings in a statement said the delay in refinancing a portion of debt through a bond against the original plan also reduces the financial flexibility. The RWN reflects MIAL’s weakened liquidity position and dependence on real estate monetisation for future capex.

The downgrade on the term loans against real estate deposits reflects significant risk on repayment of loans due in the months of August and September 2019.

The RWN reflects MIAL’s weakened liquidity position to manage the upcoming bullet repayment of Rs 2.84 billion real estate deposit loans in September 2019. The rating agency will continue to monitor the various steps indicated by the management to address the issue.

The rating on the long-term bank loan against Airport Development Fee (ADF) receivables reflects the part prepayment of ADF loans and adherence to the escrow mechanism and mandatory prepayment provisions.

A lag in the implementation of the third control period (FY20 to FY24) tariff order should have led to accumulation of cash. However, partial closure of the runway for re-carpeting and overlay work in February and March 2019 combined with the shutting down of Jet Airways’ operations have exerted pressure on the cash flows.

While that may remain unchanged, a further downgrade in the other loans may act as a trigger for the downgrade of the ADF loans, given the mutual default clauses in the loan agreements. The RWN on the ADF loans reflects the liquidity concern and the cross default provisions with other indebtedness of the company. Ind-Ra will continue to monitor the resolution of the RWN on other loans.

In the rationale published in November 2018, Ind-Ra had highlighted delays in monetisation of real estate beyond March 2019 as being a key rating sensitivity.

A lag in the implementation of the third control period (FY20 to FY24) tariff order should have led to accumulation of cash. However, partial closure of the runway for re-carpeting and overlay work in February and March 2019 combined with the shutting down of Jet Airways’ operations have exerted pressure on the cash flows.

MIAL also had to take on extra burden of supporting work on upcoming Navi Mumbai International Airport. Against the original plan (Rs 5,55 crore and capex of Rs 233 crore), additional equity of Rs 350 crore was injected in NMIAL. It also incurred an additional capex of Rs 521 crore in FY19.