Rating upgrade unlikely over 18-24 months for Hyderabad Airport: Moody's

Affirms ratings; retains negative outlook

Rating agency Moody's has affirmed GMR Hyderabad International Airport Ltd's (HIAL) Ba2 corporate family rating (CFR) and bond rating on expectations of gradual improvement in HIAL's revenue over the next 2-3 years.

The outlook on the ratings remains negative. An upgrade of the ratings is unlikely over the next 12-18 months, given the negative outlook and HIAL's high financial leverage.

A gradual improvement in revenues is expected on implementation of higher tariffs under the final tariff order from April 2022, and a gradual recovery in passenger traffic and non-aeronautical businesses on base case, agency said.

Spencer Ng, Vice President and Senior Analyst, Moody's said Nevertheless, the headroom available to HIAL to manage any further downside risks have narrowed relative to previous expectation. This is due to the regulator's decision to defer around Rs 6.7 billion of HIAL's regulated revenue to the next control period starting in April 2026.

The delay in passenger traffic recovery due to the second wave of coronavirus cases in the June 2021 quarter also narrowed down the headroom.

After factoring in the revenue deferral and slower traffic recovery, HIAL's funds from operations (FFO) will likely remain negative over the next 12-18 months. The agency said it does not expect HIAL's FFO/debt to recover above the minimum tolerance level until the year ending 31 March 2025 (fiscal 2025).

Given the already extended recovery phase, any further delay in the recovery time frame will exert downward pressure on the rating.

As of the end of June, the airport had around Rs 27 billion of available liquidity, comprising largely short-term liquid investments. Despite substantial liquidity holdings, the airport will need additional debt to complete the expansion, considering the remaining spending commitment and the impact of the revenue deferral in fiscal 2023 and fiscal 2024, it added.