KUALA LUMPUR (Feb 22): Standard & Poor's (S&P) said GMR Hyderabad International Airport Ltd's (GHIAL) proposed offer to buy back its outstanding debt of up to US$100 million (RM443.9 million) is an opportunistic exchange, and even if investors do not bite, it will not be at risk of a default within the next one year. 

The rating agency said the exercise will strengthen GHIAL’s capital structure and reduce its financing cost, because the Indian airport operator (BB-/Stable/--) is managing its debt maturities well ahead of the final maturity of its notes.

S&P noted that the transaction is a continuation of a tender offer that concluded in December 2022. Malaysia Airports Holdings Bhd (MAHB) has an 11% stake in GHIAL. 

GHIAL successfully repurchased US$139 million of the outstanding debt — US$126 million towards US$300 million 5.375% senior notes due 2024, and the remainder for US$300 million 4.75% senior notes due 2026. Funding was done through a 10-year domestic loan with a lower interest cost of 8.8%. 

“We expect the airport operator to fund the proposed tender offer with similar financing terms and cost. The tender price will be set at a premium to the notes' current market price. In our assessment, the company is not at risk of a conventional default in the next 12 months, even if investors do not accept the tender offer,” said S&P. 

The rating firm said while the proposed transaction is a proactive liability management exercise, the buy-back offer for the 2024 notes would be given higher preference than the 2026 notes to extend the company's maturity profile. 

S&P said passenger traffic rebound is likely to be a key driver of GHIAL's cash flow, supporting a recovery in its financial performance.  

Total passenger traffic at the Hyderabad airport in the first nine months of fiscal 2023 (the year ending March 31, 2023) was close to 15.4 million, with domestic traffic rebounding to 93% of that in the same period in 2019, and international traffic recovering strongly to 83%.  

It estimated that total traffic at the airport will increase to about 21 million passengers in fiscal 2023 and 23.5 million in fiscal 2024, from 12.4 million passengers in fiscal 2022. 

“We expect the bulk of the company's terminal expansion (about 90%) to be completed by the end of March 2023, with the remainder to be finished by August. Lower spending requirements thereafter will also support an improvement in financial ratios. 

“The stable rating outlook on GHIAL reflects our view that the company's ratio of operational cash flow to debt will improve to more than 5% on a sustained basis, following the recovery in passenger traffic volumes,” added S&P.