No invoking of force majeure clause for payment of Civil Aviation fees
Airport operator GMR Hyderabad International Airport Ltd’s (GHIAL; BB-/Negative/–) will face peak capital expenditure (capex) requirements of Rs.16 billion-Rs.18 billion in fiscal 2022 (year ending 31 March 2022), and about Rs.20 billion in fiscal 2023 as part of its expansionary capex program.
Noting the expenditure, S&P Global Ratings said, “We expect GHIAL to manage the execution risks on its heavy capex plans.”
GHIAL’s proposed bond issuance of up to US$300 million (about Rs.21 billion) is within S&P Global’s base case for the rating on the company.
“The issuance will not increase the leverage because we have already considered additional borrowings,” said the rating agency on 25 Jan 2021.
The bond issuance will support the company’s liquidity. GHIAL intends to use the bond proceeds to achieve financial closure for its high committed capital spending program. The India-based airport operator’s cash and accruals would not have been able to fund its Rs.60 billion-Rs.70 billion capex program over the next few years.
“In our view, GHIAL’s cash flow and leverage remain dependent on implementation of a sufficiently high tariff for control period 3 (CP3), which is from 1 April 2021 to 31 March 2026.
“The eventual tariff could be more than double the current tariff level. That’s because it could incorporate the true-up of lost revenues due to lower traffic volumes stemming from COVID-19-related travel restrictions, as well as the bulk (more than 70%) of the company’s large capex plans.
“However, we assume a one-year delay in the application of the new tariff, with the current lower tariff continuing until 1 April 2022. We understand GHIAL has not, and does not intend to, invoke a force majeure clause for payment of Ministry of Civil Aviation fees because its revenue share of 4% is significantly lower than that of peers such as Delhi International Airport Ltd,” said the agency.
The negative outlook on GHIAL reflects S&P Global’s view that the company’s ratio of operational cash flow to debt could fall sustainably below 4.5% over its next five-year tariff block.
“We also expect GHIAL’s funds from operations cash interest coverage to be less than 1.5x over the next 12-24 months. We see further downside risk for the rating on GHIAL if the regulator approves a lower tariff increase, CP3 is delayed by more than our expectation of one year, or GHIAL’s actual passenger numbers are lower than incorporated in the tariff determination,” it said. #bonds #banking #investment #revenue #infrastructure #projects /fiinews.com
