PremiumOngoing disruption of recovery in air passenger traffic due to the rise in number of covid-19 cases within India could potentially shrink capex programmes and weaken credit quality of GMR Group-led Delhi International Airport Limited (DIAL) and Hyderabad International Airport Limited (HIAL), rating agency Moody's Investors Service said in a report on Thursday.
"The surge in infection numbers will heighten health concerns, renew economic uncertainty and temper consumers' willingness to travel," said the report titled Coronavirus resurgence will likely delay airport passenger recovery, a credit negative.
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"Higher infection numbers could also force the reintroduction of travel restrictions that will drastically reduce passenger traffic," it added.
While DIAL is the largest Indian airport in terms of passengers handled, HIAL is also considered one of the busiest airports in the country. DIAL reported a 37.8% fall in domestic passenger traffic to 2.78 million in February, according to data from Airports Authority of India (AAI). In comparison, HIAL reported a 33.6% drop in domestic traffic during the same period to about a million passengers.
Earlier this year, rating agency Fitch downgraded DIAL's long-term issuer default rating (IDR) and the ratings on its outstanding senior unsecured notes to BB from BB-plus. The agency pegged the outlook for the airport to be negative while stating that the downgrade reflected a sharp drop in DIAL's passenger volumes due to the pandemic. The rating agency has also assigned a negative outlook for HIAL.
"Rated airports' credit quality will potentially weaken if the severity and duration of the second wave reaches a level that would lead to liquidity stress or challenge their ability to return to a level of cash flow generation which supports their current ratings," the Moody's report said.
Both DIAL and HIAL completed bond issuances in 2021, proceeds of which will be used to fund expansion despite the likely reduction in operating cash flow.
Premium Premium "In the case of DIAL, proceeds from its $450 million bond will also ensure that the airport can refinance the $288.8 million bond maturity in February 2022," Moody's said.
"DIAL's ability to manage the liquidity impact from a further decline in operating cash flow, which we already expected to be negative before the recent outbreak, may improve if the airport can secure an upfront deposit from a pending land sale, or if it is able to draw down from a lease facility it had executed with financiers with weak or unknown credit quality," it added.
Meanwhile, HIAL, according to Moody's, is better positioned to handle the pandemic than DIAL from a cash flow perspective.
"We expect that the airport will generate positive operating cash flow—after the implementation of higher tariffs in 2021—and there should be sufficient liquidity after accounting for the proceeds from its $300 million bond issuance in February," it added.
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