S&P gives 'BB' rating to GMR's Delhi airport ahead of bond issue

MUMBAI: Standard & Poor's has given a BB rating with a stable outlook to the GMR Infrastructure-promoted Delhi International Airport, ahead of its proposed $300-million bond issue, but warned of a potential decline in revenue and margins due to a lower airport tariffs.

A `BB' rating means the company is “less vulnerable in the near-term, but faces major ongoing uncertainties to adverse business, financial and economic conditions,“ according to the S&P website. The same rating has been given to the airport's proposed bond issue. This is the first S&P rating to an Indian infrastructure company , S&P said in its website.

ET reported on January 13 that GMR has started road shows for the proposed fundraising. The shows end on Friday. The funds raised will be used to retire debt. DIAL has to tal project debt of Rs 4,523 crore.In a conference call on Thursday , Mehul Sukkawala, a director for corporate ratings at S&P, said DIAL's revenue will fall significantly as the Airports Economic Regulatory Authority (AERA) likely revises downward, the tariffs that the airport can charge.

DIAL can revise tariffs every five years -collectively known as a control period -as ap proved by the regulator, to get adequate returns on investment. In the last control period, DIAL hiked the charges by 354% inviting much criticism from the global international aviation industry.

As assets get older, as in the case of Delhi airport whose modernisation project was completed in 2010, the value of the asset declines, as does the tariff calculated on it, assuming there is no significant fresh capital expenditure. This means Delhi will likely cut its tariffs. Tariff also declines when there is a rise in passenger numbers and when the operator has posted an increase in nonaeronautical revenue. Sukkawala said the decline in tariff, which it estimated will be implemented from April 2015, will lead to fall of 25-30% in aero nautical revenue for DIAL.

“The tariffs will come down significantly and that will affect the cash flows of the company ,“ he said, adding EBITDA margins will fall to 20% as compared to 3035%. Thomas Jacquot, senior director, corporate ratings, added that DIAL scores below global airports in terms of regulatory environment and ease.