Moody’s Downgrades Delhi Airport’s Credit Rating on Revenue Concerns
Rating agency Moody's Investor Services lowered Delhi International Airport Pvt. Ltd.'s corporate family rating and senior secured rating with a ‘stable' outlook.
The agency downgraded the airport's rating from Ba1 to Ba2 citing “continued concerns about the level of cash flow” in a report on Monday.
Revenue over the 2015-2019 period will reduce considerably because of the Airports Economic Regulatory Authority new tariff order that was imposed in December 2015, according to Abhishek Tyagi, Vice President and senior analyst at Moody's.
The downgrade reflects continued concerns about the level of cash flow generation following the regulator's previous tariff order, which will see regulated revenues reduced materially over the 2015-2019 regulatory period to levels that were not incorporated in our previous expectation.Abhishek Tyagi, Vice President and Senior Analyst, Moody's Investor Services
The tribunal authority which applied the tariff order on the Delhi International Airport is currently reviewing the previous tariff order for the period of 2010 to 2014.
The tariff order will apply to DIAL over the 2016-2019 period, and will lead to “a substantial decrease in annual aeronautical revenue by around Rs 20 billion (Rs 2,000 crore) or around 70 percent from 2018 fiscal year”, said Tyagi. “This will also alter the revenue mix, with the proportion of the higher risk non-aeronautical revenues increasing to a higher level than previously anticipated,” he added.
Aeronautical revenue is the primary source of an airport's revenue which includes revenue from flight operations – airline rents, usage fee and other specific fees for airport services.
Expansion Pressure
Another basis for the downgrade, according to Moody's, is the planned expansion program of Delhi International Airport which will put further pressure on its financial metrics.
The Project 3A is likely to require around Rs 4,000-7,000 crore over the next 3-5 years depending on the final size and composition, Moody's said.
While the expansion project is indicative of passenger growth being experienced by DIAL, the rating downgrade takes into account the incremental amount of debt to part-fund the project as well as the construction and execution risk associated with it.Moody's Investor's Services Report
Delhi International Airport Pvt. Ltd.'s current liquidity stands at Rs 1,790 crore as of June 30, 2016 with the airport's debt servicing and capital expenditure requirement totalling around Rs 280 crore over the next 12 months, the report stated.
Amidst the uncertainty associated with the regulatory process and the planned expansion program, upward rating movement by Moody's in the near term is unlikely, it said in the report.
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