PETALING JAYA: MALAYSIA AIRPORTS HOLDINGS BHD’s (MAHB) exposure to expansion risks could escalate over the next 12 months, as it could take on a greater role in future airport expansion, Moody’s Investors Service says.
The rating agency said that MAHB’s (A3 stable) role could see potential changes, as it would be responsible for developing new airport capacity under a new concession agreement.
Another factor was a new tariff-setting framework that would determine its capacity to fund future expansion, it said in a report yesterday.
So far, the rating agency said the airport operator had not been directly exposed to expansion-related risk because the Malaysian government retains the primary responsibility of developing new airport capacity.
MAHB operates 39 airports in Malaysia, including the KL International Airport (KLIA), the country’s international gateway airport, under two concession agreements executed in 2009.
An extension of MAHB’s concession agreements was announced in April 2019 although the final terms and conditions were still being negotiated.
Moody’s pointed out that a key consideration in the negotiation is a potential increase in MAHB’s role in future expansion, in which case, the company would face similar expansion risk and the associated funding requirements as its rated Asia Pacific (APAC) peers.
“Although such a change would increase MAHB’s exposure to expansion-related risks, such an arrangement would give MAHB more control over the planning and timing of expansion, which would support the airport group’s ability to maintain its quality of service and competitiveness with other hub airports in the region.
“Operationally, the pressure on the company’s existing infrastructure is not as acute as those faced by rated Indian airports, but additional investment would likely be required over the next three to five years.
“At the end of 2018, a number of MAHB’s airports in Malaysia were already operating at above or close to capacity, including KLIA Main (Terminal 1),” it said.
Moody’s emphasised that improving efficiency and service quality was crucial to KLIA’s ability to compete as a hub airport for international traffic originating in the region.
MAHB has proposed a capital spending programme of around RM5bil for its Malaysian operations in the first control period between 2020 and 2022, as part of its regulatory submission for the new tariff-setting framework.
The proposed amount is broadly in line with the RM5bil proposed by the regulator in the consultation paper published in June 2019, and which would represent a significant increase from the RM200mil to RM300mil spent annually between 2014 and 2017.
Moody’s also pointed out that there was some uncertainty over the new tariff-setting framework.
Using a hypothetical funding ratio of 70%, the airport will require additional debt of around RM3.5bil, higher than the company’s net debt of RM2.3bil at end-2018.
“As such, the ability to grow in revenue and cash flow provided under the tariff-setting framework would be important to the airport group’s ability to preserve its financial profile during the expansion period.
“MAHB’s financial leverage is well positioned for its rating (as of the end of 2018) with some headroom to absorb additional expansion-related debt.
“However, the airport group’s ability to fund future expansion projects and preserve its financial metrics would hinge on the new tariff-setting framework being developed by its independent regulator, the Malaysian Aviation Commission (Mavcom),” it said.
Based on a consultation paper published by Mavcom in June 2019, a new building-block based framework – if implemented as is –would likely keep MAHB’s aeronautical revenue from its operations in Malaysia close to or above the prevailing level.