Rating Action: Moody's changed outlook on Delhi Airport to stable from negative, affirms B1 ratingGlobal Credit Research - 26 Aug 2022Singapore, August 25, 2022 -- Moody's Investors Service ("Moody's") has today changed the outlook on Delhi International Airport Limited (DIAL) and India Airport Infra (previously Cliffton Limited) to stable from negative.Moody's has also affirmed DIAL's B1 corporate family rating (CFR) and B1 USD 1,022.6m guaranteed senior secured bond ratings due 2026 and 2029, as well as DIAL's b1 Baseline Credit Assessment (BCA).At the same time, Moody's has affirmed India Airport Infra's USD 450m senior secured bond rating due 2025 at B1."The outlook change and rating affirmations reflect the sustained improvement in passenger traffic at Delhi Airport, as well as the airport's progress in securing additional funding for its expansion, which has reduced potential downside risks to the ratings over the next 12-18 months," says Spencer Ng, a Moody's Vice President and Senior Credit Officer.DIAL is the concessionaire for the Indira Gandhi International Airport (IGIA), which is located in the political capital of India, and operates under an Operations, Management and Development Agreement with the Airports Authority of India, a government agency.India Airport Infra is an orphan special-purpose vehicle established to facilitate a USD bond issuance. Proceeds from the transaction were used to subscribe to INR non-convertible debentures issued by DIAL. DIAL does not have any equity interest or management control in India Airport Infra. India Airport Infra's B1 rating is closely linked to DIAL's rating, given that the former is reliant on cash flow from DIAL to meet its own debt servicing requirements.RATINGS RATIONALEDIAL's B1 ratings are underpinned by the strong market position of IGIA, India's busiest airport and a domestic and international gateway.Passenger traffic has recovered strongly over the past twelve months, led by domestic passengers. Under Moody's base-case scenario, monthly domestic traffic is expected to recover to pre-pandemic levels before the end of fiscal 2023 (ending March 2023). Domestic traffic has already reached 90% of fiscal 2019 levels, and exceeded fiscal 2020 levels, consistently in recent months. Moody's expects international traffic to fully recover in fiscal 2024.DIAL's exposure to pandemic-related disruptions is significantly reduced. The speedy recovery in passenger traffic from the effects of the Omicron wave in February of 2022 demonstrates the government's increasingly adept approach toward managing the pandemic, as well as travelers' willingness to continue flying even as case numbers surge.Despite the potential dampening effects from slower economic growth and high fuel prices, Moody's expects passenger traffic to continue to grow over the next 12-18 months on the back of the strong underlying demand for air travel.DIAL's exposure to funding risks associated with its expansion has reduced, following its successful drawdown from its INR17 billion lease facilities and the INR10 billion domestic bond issuance that was completed in June 2022. As of the end of June, DIAL had around INR22 billion in cash and short-term investments and INR16 billion of undrawn amounts available under its lease facility, which should substantially cover its remaining capital cost for the expansion.The airport will likely require additional funding to repay deferred revenue share payments that are currently the subject of an arbitration process. The total amount of such deferred revenue share payments is around INR13 billion according to management. Additional funding may also be required if there is an unexpected and material cost or time overrun to the expansion, which DIAL expects to complete by September 2023. Nevertheless, DIAL has a track record of accessing the debt market, as indicated by its recent domestic bond as well as offshore transaction in March 2021 amid the pandemic. Any further debt raising is subject to DIAL meeting terms and conditions within its financing documents.At the same time, the ratings further benefit from DIAL's regulated aeronautical revenue, which supports its long-term commercial viability, although any actual benefit will not materialize at least until the scheduled start of the next control period (CP4) in March 2024.The primary constraint to DIAL's ratings is its very weak financial profile over the next 1-2 years as a result of the material debt raised to fund its airport expansion. Moody's expects DIAL's funds from operations (FFO) to remain negative as a result of its substantial interest payments (including capitalized interest), likely until (1) the completion of its airport expansion, which will add floor space for commercial activities and lift non-aeronautical revenue and (2) the implementation of higher tariffs in CP4 - likely during 2024 - on the back of a higher regulated asset base due to the expansion.Moody's financial projections have not factored in any potential upside from the ongoing arbitration between DIAL and the Airports Authority of India regarding the airport's obligation to make revenue share payments during force majeure caused by the pandemic. The assumption is that the deferred amounts will need to be repaid during the current fiscal year.DIAL's B1 CFR combines (1) the company's BCA of b1, and (2) the low likelihood of support that Moody's believes the Government of India (Baa3 stable) will provide to DIAL in times of need, resulting in the absence of uplift from government support to the company's BCA.Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.The stable rating outlook reflects Moody's expectation that DIAL would complete the expansion on time and within budget, and will be able to secure additional funding to complete the expansion if required.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSAn upgrade of the B1 ratings is unlikely over the next 12-18 months because of DIAL's weak financial metrics until the commissioning of the new airport facilities after the expansion and an increase in its tariffs in the next control period. Moody's could upgrade the rating over time if there is an improvement in DIAL's FFO/debt to the low-single-digit percentages on a sustained basis, following the completion of the airport expansion.Moody's could downgrade the B1 ratings if there are signs of liquidity stress or the expected recovery of DIAL's FFO to positive territory is likely to be delayed beyond fiscal 2025. Such delays could be the result of a significant cost or time overrun in the expansion project; or an unexpected deterioration in operating conditions.PRINCIPAL METHODOLOGIESThe principal methodologies used in rating Delhi International Airport Limited were Privately Managed Airports and Related Issuers published in September 2017 and available at https://ratings.moodys.com/api/rmc-documents/63380, and Government-Related Issuers Methodology published in February 2020 and available at https://ratings.moodys.com/api/rmc-documents/64864. The principal methodology used in rating India Airport Infra was Privately Managed Airports and Related Issuers published in September 2017 and available at https://ratings.moodys.com/api/rmc-documents/63380. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.Delhi International Airport Limited (DIAL) is the concessionaire for the Indira Gandhi International Airport, which is located in the political capital of India, and operates under an Operations, Management and Development Agreement, concluded in 2006 with the Airports Authority of India, a government agency. The concession is for a 30-year period, and DIAL has the option to extend it for another 30 years, subject to the company meeting defined performance criteria.India Airport Infra, which was incorporated in Mauritius in December 2020, is held by a trust. DIAL has no ownership interest in, or control over, India Airport Infra.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.At least one ESG consideration was material to the credit rating action (s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. Spencer Ng VP - Senior Credit Officer Project & Infrastructure Finance Moody's Investors Service Singapore Pte. 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