Lenders jittery over Mumbai International Airport's falling financials

After CRISIL downgrades company debt, bankers ask GVK group to come out with repayment plan

Lenders to Mumbai International Airport (MIAL) are worried over the falling financial metrics of the airport and have asked its owner, the GVK group, to come out with a viable plan to repay their dues once the RBI moratorium ends this month end.  

The banks’ ultimatum to GVK group came after rating agency CRISIL downgraded the debt instruments of MIAL on Wednesday because of low visibility in cash flows against debt servicing requirement. 

CRISIL has downgraded Rs 9,782 crore of MIAL’s bank debt and Rs 2,000 crore of non-convertible debentures. What has worried the banks that MIAL has cash balance of only around Rs 150 crore and unutilised working capital of Rs 110 crore as of August 1, thus giving an uncertain outlook on debt repayments. The lenders have the option to call the facility in the event of a rating downgrade, say bankers.

“The parent group is also facing liquidity issues and with airport traffic coming down, we have asked the group to come out with a viable plan. We are looking at debt to equity conversion,” said a Mumbai-based banker.

CRISIL warned that liquidity challenges have increased for the airport due to limited accrual generation on curtailed airport operations and uncertainties around usage of cash balance in escrow account. It is because of pending judgment of Delhi High Court regarding payment of annual concession fee to Airports Authority of India. 

“MIAL has upcoming debt servicing obligations of around Rs 65 crore on project loans within September. Also, there is limited visibility on treatment of accrued interest of around Rs 147 crore for period of moratorium from March to August. State Bank of India has added its portion of accrued interest of around Rs 146 crore into principal and total accrued interest is around Rs 293 crore for the period of moratorium,” CRISIL said.

The company has a debt service reserve account (DSRA) of around Rs 213 crore in the form of bank guarantee that can be utilised for servicing the debt in an adverse situation, according to the rating agency. CRISIL said the ratings remain on watch with negative implications on account of the presence of rating-linked triggers, uncertainty over the ability to generate cash flows amidst curtailed airport operations, and traction on the company's plan for raising of real estate deposits. 

The ratings continue to reflect a strong market position as the developer and operator of Chhatrapati Shivaji Maharaj International Airport, Mumbai, and regulated returns from aeronautical revenue. These strengths are partially offset by exposure to risks associated with construction of a greenfield airport at Navi Mumbai and weakened liquidity on account of delay in real estate monetisation.

Interestingly, one of the shareholders of MIAL, South African firm Bidvest, had moved the court seeking an exit in January last year. GVK, which has 50.5 per cent stake in MIAL, has objected to Bidvest’s 13.5 per cent sale to the Adani group citing ROFR (right of first refusal) agreement signed among all shareholders of MIAL. The matter is pending before the Delhi HC. The Adani group has also offered to buy out GVK’s stake. 

Given the current state of operations, CRISIL said MIAL’s ability to generate accruals over near term is curtailed. MIAL has upcoming debt servicing obligations of around Rs 65 crore on project loans within September. 

However, there is limited visibility on treatment of accrued interest of around Rs 147 crore for period of moratorium from March to August 2020). MIAL has the option of Rs 213 crore in form of bank guarantee which can be utilised for debt service payments for project term loans in an adverse case.

As the company is low on cash, it will be difficult for MIAL, which won the mandate to set up Navi Mumbai airport, to implement the project, CRISIL said.