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Covid-19: Rating agency Moody's downgrades DIAL's corporate rating

Moody's expects DIAL's funds from operations (FFO) to remain negative for the next 12 months after factoring in capitalized interest (PTI)Premium
Moody's expects DIAL's funds from operations (FFO) to remain negative for the next 12 months after factoring in capitalized interest (PTI)

  • It expects DIAL's funds from operations (FFO) to remain negative for the next 12 months after factoring in capitalised interest. FFO would likely remain negative until after completion of airport expansion and levy of higher tariffs

NEW DELHI: Rating Agency Moody's on Friday said it has downgraded Delhi International Airport Limited's (DIAL) corporate family rating (CFR) and senior secured ratings to B1 from Ba3, taking into account the adverse impact of covid-19 pandemic on air passenger traffic. The outlook is negative, the rating agency said.

B1 credit rating by Moody's is considered high credit risk, while Ba3 rating is considered a significant credit risk.

"The rating downgrade reflects the adverse impact of reduced passenger traffic and airport revenue in the current fiscal year ending March 2022, due to the surge in daily infection numbers since late March," said Spencer Ng, vice president and senior analyst at Moody's.

"We believe the consequent reduction in revenue will lead to an additional debt being required to complete the airport's expansion and prolong the recovery in DIAL's financial metric," he added.

The rating agency said the negative outlook captured downside risks over the next 12-18 months, given the material uncertainty in the recovery of India's passenger traffic, which will be heavily influenced by when travel restrictions are lifted and the successful rollout of vaccines as outlined by the government.

With passenger traffic at the airport falling more than 60% in May from levels seen in February and given a large majority of DIAL's revenue is linked to this, the airport's revenue is likely to fall in line with the drop in passenger numbers, it added.

Meanwhile, Moody's expects DIAL's funds from operations (FFO) 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, the rating agency said.

Moody's projections have not factored in any upside that might result from further land monetisation transactions or from cancellation of revenue share payments that may arise from an ongoing arbitration or other unannounced initiatives, it added.

"Although revenue should gradually recover in line with passenger traffic, the projected growth under Moody's base-case scenario is unlikely to be sufficient to cover rising interest expenses (including capitalized interest) as the airport draws down from its lease arrangement or other debt to fund the expansion over the next 2-3 years," it said.

"This is particularly so after considering DIAL's obligation to share 45.99% of its revenue with Airports Authority of India (AAI) under its concession agreement. Factoring the proceeds from its USD450 million bond issuance in March, DIAL has a solid liquidity profile that is likely to cover its operating and financing costs, as well as planned capital spending for the next 12 month," it added.

Delhi International Airport Limited (DIAL), which operates the country's busiest Indira Gandhi International Airport (IGIA), is a joint venture between GMR Group (54%), Airports Authority of India (26%), and Fraport AG, and Eraman Malaysia, who have 10% stake each. GMR is the lead member of the consortium, along with Fraport AG as the airport operator and Eraman Malaysia as the retail advisor.

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