S&P downgrades Delhi International Airport's long-term rating to 'B-' citing liquidity risk

International rating agency Standard and Poor’s (S&P) on November 26 cut down the long-term issuer rating of Delhi International Airport Ltd (DIAL) from 'B+' to 'B-', citing heightened liquidity risk.

Stating the reason as material delays in the receipt of commercial property development (CPD) cash flows, the rating agency downgraded its rating for DIAL.

DIAL is considering options of preserving cash in the absence of CPD money, including lease financing.

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The rating agency had earlier kept their rating on CreditWatch where they were first placed with negative implications on March 20, 2020. The capital structure of DIAL may become increasingly unstable without CPD income, resulting in heighten refinancing risks for the company's bonds due in February 2022.

"We lowered the ratings on DIAL due to uncertainty in the company's receipt of CPD income and deposits from Bharti Realty Ltd,” Business Standard quoted S&P statement.

Amid the continuing regulatory uncertainty, DIAL may face increased liquidity risks with its high dependence on CPD cash flows to support interest obligations and capital expenditure (CapEx).

The agency even pointed out that over the next 12 months, DIAL’s funds from operations (FFO) cash interest coverage may be below 1.0x.

"We do not view DIAL's capital structure as unsustainable, even though its interest servicing ratio is below 1.0x. We understand the company is considering a few options that could preserve cash in the absence of CPD money," S&P added.

Also, DIAL's high cash balance will be depleted at a faster pace with its large committed expansion plans which were dependent on the receipt of CPD funds. Weaker passenger traffic due to COVID-19 travel restrictions and large interest servicing costs may add more pressure to DIAL's ability to service its interest obligations.

The obligations for DIAL include lease financing for up to Rs 2,000 crore of its CAPEX for mobile equipment and its cash balance of Rs 2,950 crore will be sufficient to meet its capital spending in a year to September 30, 2021, the agency added. However, debt maturities are minimal over this period.