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Moody's Investors Service has downgraded GMR Hyderabad International Airport Ltd's (HIAL's) corporate family rating to Ba2 from Ba1 and confirmed Delhi International Airport Ltd's (DIAL's) Ba3 corporate family rating and senior secured ratings.
The outlook on the ratings for both has been changed to negative from ratings under review. At the same time, Moody's has confirmed DIAL's baseline credit assessment at ba3.
DIAL is the concessionaire for the Indira Gandhi International Airport and operates under an operations, management and development agreement with the Airports Authority of India. It is undertaking a major airport expansion that will cost Rs 9,800 crore and another two to three years to complete.
"The rating confirmation considers the resumption of domestic passenger traffic on May 25 after a two-month suspension of commercial flights in India, management's efforts to reduce operating cost and its delayed capital spending, which will have a positive impact on the airport's liquidity position," said Moody's Vice President and Senior Analyst Spencer Ng.
The negative outlook, however, reflects material downside risk over the next 12 to 18 months, given the uncertainty over the recovery in the airport's traffic and India's weakening economic conditions, which could complicate the airport's efforts to secure additional funding to complete its expansion project and refinance its 288.75 million dollar bond maturity in February 2022.
On the other hand, HIAL has a long-term concession to operate the Rajiv Gandhi International Airport in Hyderabad under a public-private partnership model. It is undertaking a major airport expansion that will cost Rs 5,500 crore and take two to three years to complete.
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"The downgrade reflects the weak operating conditions associated with the spread of coronavirus pandemic," said Ng.
While domestic travel recently resumed, the rating was already weakly positioned. The spread of the pandemic, along with HIAL's active capital expenditure plan, means that its credit profile is no longer consistent with the previous rating.
Moody's expects HIAL's funds from operations and debt to weaken to the mid-single digit percentage range over the next two to three years which will position the airport at the Ba2 rating range.
The decline in HIAL's financial metrics is primarily driven by the tariff cut implemented in April 2020, the additional debt HIAL will need to incur to complete its airport expansion as well as the reduction in airport traffic as a result of the coronavirus outbreak which will lower the airport's non-aeronautical revenue.
