Moody's changes MAHB's outlook to ‘negative’ due to challenges faced by Istanbul unit

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KUALA LUMPUR (July 27): Moody's Investors Service has changed Malaysia Airports Holdings Bhd’s outlook (MAHB) to ‘negative’ from ‘stable’ to reflect the heightened operating challenges faced by the airport operator’s unit in Istanbul.

Nonetheless, Moody's has affirmed MAHB’s A3 issuer rating.

In a media statement today, Moody’s pointed out that the change in outlook to negative principally reflects the dismal outlook for MAHB's wholly-owned subsidiary, Sabiha Gokcen International Airport (SGIA), which owns and operates the second largest airport in Istanbul, Turkey.

"We expect SGIA to experience a material decline in passenger traffic growth in the next 12 to 18 months, following the coup attempt that ended on July 16, as well as the terrorist attacks that occurred earlier this year," said Moody's vice president and senior analyst Ray Tay.

"As such, growth in passenger traffic at SGIA could decline to low single-digits for 2016 and potentially 2017; and international travel in particular, will likely be hit," he said.

"Passenger service fees for international passengers are much higher than those for domestic passengers," he added.

According to Moody’s, the expected weakness in the Turkish operations would be occurring at a time when MAHB's Malaysia operations are experiencing modest growth, following the series of airline disasters that occurred in 2014, as well as the completion of route rationalisation by Malaysia Airlines Bhd in 2016.

Moody's expects passenger traffic at the Malaysian operations to grow by low to mid-single digit in 2016 and 2017, but to improve after that period.

Moody’s said previously, traffic growth at SGIA — which was at least in the high teens over the past two years — provided a mitigant against slow recovery in passenger traffic growth at MAHB's operations in Malaysia.

"For these reasons, we lowered the BCA to baa3 from baa2, reflecting our expectation of a weaker financial profile over the medium term, compared to previous expectation," said Tay.

The negative outlook reflects the high degree of uncertainty over the next 12 months, associated with passenger growth at SGIA.

MAHB's A3 issuer rating reflects the application of Moody's rating methodology on government-related issuers. Using the methodology, Moody's combined the company's baseline credit assessment (BCA) of baa3; and a three-notch uplift, based on Moody's joint default analysis approach.

The three-notch uplift reflects Moody's assessment that MAHB will receive support from the Government of Malaysia (A3 stable) in a distressed situation.

As of June 30, 2016, MAHB was 36.7%-owned by Khazanah Nasional and 23.9%-owned by the Malaysian government-related entities — Employees Provident Fund, which had a 12.4% stake, and Skim Amanah Saham Bumiputera — which had an 11.5% stake.

Shares of MAHB closed 5 sen or 0.86% higher at RM5.90 today, for a market capitalisation of RM9.79 billion.