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Photo: Reuters
Photo: Reuters

Fitch downgrades DIAL's long term debt with outlook negative

  • ''The downgrade reflects the sharp drop in DIAL's volume in 2020 due to significant travel restrictions to curb the spread of the coronavirus. Fitch expects the recovery in traffic volumes to be prolonged.''

NEW DELHI : Rating Agency Fitch on Monday downgraded Delhi International Airport Ltd's (DIAL) long-term issue rating on its senior unsecured notes to 'BB' from 'BB+', while labelling the joint venture's outlook as negative due to significant travel restrictions put in place to curb the spread of the coronavirus.

"The downgrade reflects the sharp drop in DIAL's volume in 2020 due to significant travel restrictions to curb the spread of the coronavirus. Fitch expects the recovery in traffic volumes to be prolonged," the rating agency said in a statement.

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"Although the pandemic has reduced passenger travel, infection rates in India have stabilised and a domestic air traffic recovery is underway. However, the Negative Outlook reflects the risk of an increase in infection rates that will lead to re-imposition of travel restrictions," it added.

According to Fitch, BB' ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial flexibility exists that supports the servicing of financial commitments.

An unsecured note is corporate debt that does not have collateral attached and is thus a riskier prospect for an investor.

The ongoing covid-19 pandemic has adversely impacted Indian airports, airlines, and other aviation stock holders due to travel restrictions that have led to a muted travel demand.

"Our revised rating case scenario assumes a 65% decline in passenger traffic in FY21, based on the following assumptions of the quarterly traffic trend: significant reduction in international traffic and, to a lesser extent, in domestic traffic in 2QFY23, stabilisation of traffic in 3QFY23, and gradual recovery in 4QFY23 and 1QFY24. We assume traffic in FY24 to recover to the FY20 level," the rating agency added.

Rating Agency S&P Global had earlier in November downgraded DIAL's long-term issue rating on its senior secured notes to 'B-' from 'B+' due to heightened liquidity risks.

According to S&P Global, an obligation rated 'B' is more vulnerable to non-payment than obligations rated 'BB', but states that the obligor currently has the capacity to meet its financial commitments on the obligation.

Delhi International Airport Limited ( DIAL) is a joint venture between GMR Group (54%), Airports Authority of India (26%), and Fraport AG and Eraman Malaysia (10% each). The busiest airport in the country, facilitated 6.7 crore passengers during FY 2020. It expects 73% fall in traffic during FY 2021.

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