First it was S&P Global Ratings in November, and now Fitch Ratings, the Delhi International Airport Limited (DIAL) has received two rating downgrades in less than three months. In the case of Fitch Ratings, the downgrade happened because of the sharp drop in footfall at the Delhi Airport last year due to stringent travel restrictions imposed as a result of pandemic, weaker earnings, and net debt/EBITDAR (earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs) ratio increasing to 10.
"Although the pandemic has reduced passenger travel, infection rates in India have stabilised and a domestic air traffic recovery is underway. However, the negative outlook reflects the risk of an increase in infection rates that will lead to re-imposition of travel restrictions. Fitch's rating case does not assume annual fee payment to Airports Authority of India (AAI) from the fourth quarter of FY21 till end-FY22. Any unfavourable arbitration order could also put significant pressure on the ratings," Fitch said.
In December, DIAL, the largest airport in the country in terms of passenger traffic, had approached Delhi High Court to suspend monthly fees - part of the 2006 agreement between DIAL an AAI under which DIAL is required to pay 45.99 per cent of its annual revenue as concession fees to AAI - by invoking force majeure in the pandemic. The Court provided relief to DIAL by granting interim stay, which essentially means that the DIAL doesn't have to make payments to AAI until an arbitration tribunal makes a decision on the matter.
Earlier S&P had noted that DIAL could face increased liquidity risks given its high dependence on commercial property development (CPD) cash flows to support interest obligations and capital expenditure (capex) amid continuing regulatory uncertainty.
18/01/21 Manu Kaushik/Business Today
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