DIAL to seek Rs.20bn lease financing
Delhi International Airport Ltd (DIAL) has invoked a force majeure clause owing to the pandemic, allowing it to benefit from an interim stay on high revenue share payments to Airport Authority of India (AAI), according to a report by S&P Global Ratings on 28 Jan 2021.
“Our base case assumes that the fee payments will likely be deferred from January 2021 till end-December 2021, while awaiting final decision by the arbitration tribunal,” it said in assessing the credit ratings of DIAL.
“In our view, the temporary stay order will provide about Rs.2 billion of cash flow relief in fiscal 2021 and support intra-year liquidity in fiscal 2022. The cash relief will be available to DIAL for meeting both operational and financial obligations, and can offer additional liquidity buffer for the company.
“We do not yet view DIAL’s capital structure as unsustainable, even though its interest servicing ratio is below 1.0x,” said S&P Global.
DIAL can service interest during construction (IDC) through debt, as part of its capex loan facilities. S&P estimates IDC will amount to about Rs.2 billion a year over fiscals 2023 and 2024, following the drawdown of debt to fund the heavy capex program.
This could help to cover the earnings shortfall in meeting interest expenses over the period.
“We also understand the company is considering options that could preserve cash. These include obtaining lease financing for up to Rs.20 billion of its capex for mobile equipment at the end of the capex phase (fiscal 2024), which could offer some cash flow relief. We believe lease financing is at the discretion of the company and not dependent on favorable market conditions.”
There are some developments on DIAL’s commercial property development (CPD) transaction with Bharti Realty Ltd. DIAL is now seeking the necessary approvals for CPD directly with various government agencies and believes it can expedite the process. The transaction deadline has also been extended for another three months to 31 March 2021, reflecting Bharti Realty’s continued interest in closing the deal.
“However, our base case excludes the receipt of CPD cash flows from Bharti Realty due to material delays of over 15 months. Cash receipts under CPD could provide additional cash flows to support FFO interest coverage above 1.0x. As per current arrangements, DIAL could receive lease rentals of about Rs.3.6 billion a year and a one-off upfront security deposit payment of about Rs.15.3 billion, upon successful closure of the transaction,” said S&P Global.
The rating agency aims to resolve the CreditWatch within the next 90 days based on DIAL’s progress in putting in place credible refinancing plans for its bond maturity in February 2022 and achieving a sustainable interest coverage.
It expects to have greater visibility on the interim stay order and Bharti Realty CPD transaction over the next 90 days.
S&P Global could lower the rating on DIAL by at least one notch if:
• The company fails to implement a credible refinancing plan for its February 2022 bond, or
• It is unable to put in place measures to preserve enough cash such that we believe DIAL’s financial commitments would be unsustainable in the long term.
“We could affirm the rating with a stable outlook if DIAL secures facilities for refinancing its February 2022 bond. This would also entail the company putting in place measures to alleviate pressure on its capital structure, such that FFO cash interest coverage is sustainably above 1.0X.
“We believe that the CP3 (regulatory control period 3) tariff implementation will not materially strain DIAL’s cash flows and interest servicing ability.”
S&P Global forecasta the company’s funds from operations (FFO) cash interest coverage will remain at about 0.8x over fiscals 2022 (ending March 31, 2022) and 2023. The final tariff order announced by the regulator on 30 Dec 2020, allows DIAL to continue with current base airport charges (BAC) + 10%.
“This is lower than our previous expectation of a tariff that is 40% higher than the current BAC levels.
“However, DIAL will be able to earn additional compensation tariff toward discontinuance of fuel throughput charges (to be levied from Feb. 1, 2021), which will partly offset the lower tariff increase, in our view. We estimate DIAL’s EBITDA will be about Rs.7.9 billion in fiscal 2022 and Rs.9.6 billion in fiscal 2023, which is about Rs.700 million a year lower than our previous expectations,” said S&P Global.
DIAL continues to face refinancing risks over the next 12 months, though there is some progress.
We believe DIAL’s weak interest servicing ability over the next three fiscal years and high committed capital expenditure (capex) could challenge refinancing prospects for its February 2022 bond if market liquidity tightens. DIAL has engaged with domestic banks and is also actively exploring options in the debt capital markets.
The Reserve Bank of India’s cap on the cost of borrowing at 450 basis points over LIBOR for foreign currency borrowing is another hurdle. Capital markets still seem to have appetite for Indian airport assets as reflected by recent bond issuance by GMR Hyderabad Airport Ltd and DIAL’s February 2022 bonds trading above par.
DIAL can manage its liquidity needs over the next 12 months.
With a high cash balance of Rs.21 billion (as of 31 Dec 2020), liquidity sources will be sufficient to cover DIAL’s operating expenses, interest obligations, and capital spending over the 12 months to 31 Dec 2021. There are also no debt maturities over the period, though there is the large bullet maturity of the February 2022 bonds, according to the rating agency. #banking #financing #bonds #investment #infrastructure #privatization /fiinews.com
