Moody's downgrades Delhi International Airport rating following Covid surge

Outlook negative; Moody's says reduction in revenue will lead to additional debt being required to complete the airport's expansion

Rating agency Moody's today downgraded Delhi International Airport Ltd's (DIAL) corporate family rating (CFR) from “Ba3” to “B1”, reflecting the adverse impact of reduced passenger traffic and airport revenue in FY22 following a surge in Covid-19 cases.

The senior secured ratings were downgraded from “Ba3” to “B1”. At the same time, Moody's downgraded Cliffton Ltd's senior secured bond rating to “Ba3” to “B1”.

The outlook on the ratings is negative.

Moody's in a statement said the consequent reduction in revenue will lead to additional debt being required to complete the airport's expansion. It will prolong the recovery in DIAL's financial metrics to a level consistent with a “Ba” rating.

DIAL is the concessionaire for the Indira Gandhi International Airport in New Delhi. It operates under an Operations, Management and Development Agreement with the Airports Authority of India, a government agency.

Cliffton Limited is a special-purpose vehicle established to facilitate dollar bond issuance. Proceeds from the transaction were used to subscribe to non-convertible debentures issued by DIAL. DIAL does not have any equity interest or management control in Cliffton Limited.

The negative outlook captures downside risks over the next 12-18 months, given the material uncertainty in the recovery of India's passenger traffic. This will be heavily influenced by when travel restrictions are lifted and the successful roll-out of vaccines as outlined by the government, it added.

Passenger traffic at the airport had likely fallen by more than 60 per cent in May from the February 2021 level, based on reported daily traffic figures. Given a large majority of DIAL's revenue is linked to airport traffic, Moody's expects revenue to fall in line with the drop in passenger numbers.

While pandemic-driven revenue declines are not uncommon amongst rated airports, DIAL has limited capacity to offset reduced cash flow by cutting dividends or deferring its capital expenditure in a meaningful way, under currently announced plans.

As such, Moody's expects the airport to need additional debt -- relative to previous forecasts – in lieu of the operating cash flow lost due to the second coronavirus wave, to complete its Rs 9,800 crore expansion.

DIAL's funds from operations (FFO) are expected to remain negative for the next 12 months after factoring in capitalised interest. FFO would likely remain negative until after completion of the airport expansion and implementation of higher tariffs after the next regulatory determination.