Domestic terminal
Delhi airport will see its income growing going forward but financial leverage will remain a challengeNew Delhi airport website

Moody's Investors Service has issued its first-time rating to the company that owns the Delhi International Airport Private Limited and the dollar bonds issued by it, citing the market strength of the airport and its better demand and income outlook.

The provisional corporate family rating given to the firm and its bonds is (P)Ba1. The DIAL will use the proceeds of the bond sale to fully refinance an existing foreign currency bank term loan facility, Moody's noted.

"The rating primarily reflects DIAL's strong market position as the international gateway to India's landlocked capital, a region of around 17 million people", said Arnon Musiker , a Moody's vice president.

Rising passenger volumes will help increase non-aeronautical revenues of DIAL, according to the ratings agency.

"We expect the airport to benefit from increased travel demand as income grows, particularly because an increasing proportion of the airport's revenues - being non-aeronautical revenues — will be driven by rising passenger volumes," Musiker said.

The company's business plan assumes a material increase in non-aeronautical revenues, which comprise both passenger-driven revenues — such as duty-free, retail and cargo handling services — and commercial property developments.

The airport's core aeronautical revenue stream is regulated on a price cap basis and, as such, is not exposed to the risk of fluctuations in passenger volumes, a source of fundamental rating support, Moody's said.

Moody's added that the regulatory environment is supportive for the airports sector.

"While the regulatory framework for the sector was only established around three years ago, and therefore lacks a track record, the regulator has to date shown a supportive stance towards the sector."

This supportive regulatory environment should act as a buffer against unanticipated weakness in unregulated non-aeronautical revenues, the rating agency said.

Moody's said it factors in a lower level of visibility in relation to the commercial property developments, particularly because the concession arrangements restrict the type of permissible developments.

Over the longer term, the revenue from non-aeronautical sources will become increasingly important for DIAL, for which high financial leverage can become a potential challenge going forward.

"The primary rating constraint is the company's high financial leverage — as measured by funds from operations to gross adjusted debt — which we expect to be in high single-digit range over the next 12 to 24 months," Moody's said.

The ratings could be lowered if funds from operations/gross adjusted debt falls below 6.5%-7.0% and/or the DSCR declines below 1.3x on a sustained basis, the rating agency said.