Moody's affirms Malaysia Airports' A3 rating, pandemic weighs on outlook

KUALA LUMPUR: Moody's Investors Service has affirmed Malaysia Airports Holdings Bhd's (MAHB) A3 issuer rating and baa3 Baseline Credit Assessment (BCA).

In a statement issued on Tuesday, the international rating agency said the outlook remains negative due to the impact of the Covid-19 pandemic on the passenger traffic.

MAHB is a near-monopoly airport operator in Malaysia (A3 stable) operating under long-term airport concessions. Its network includes Kuala Lumpur International Airport (KLIA), four other internationalairports and 16 domestic airports in Malaysia.

MAHB also operates Sabiha Gokcen International Airport (SGIA) in Istanbul, Turkey (B2 negative) via a wholly owned subsidiary.

"The rating affirmation reflects our expectation of support from the Government of Malaysia (A3, stable) if required, the dominant market position of MAHB's network of airports in Malaysia and its good liquidity as well as access to capital markets, which will help the airport operator manage its liquidity requirements through the pandemic," said Spencer Ng, a Moody's senior analyst and vice president.

Moody’s said the negative outlook captures the downside risk associated with the uncertain impact of the pandemic on passenger traffic at MAHB's airports over the next 12-18 months.

The recovery in traffic will likely be heavily influenced by the success of containment of new infection cases and rollout of coronavirus vaccines, key criterions outlined by the government in the National Recovery Plan (NRP) for resumption of domestic and international air travel.

In the four months to April 2021, passenger traffic at MAHB's operations in Malaysia fell by 88% relative to the same period in 2020, as a result of the restrictions imposed by the government to curb a rise of coronavirus infection cases.

Considering the further surge in case numbers in May and June, Moody's expects passenger traffic in Malaysia to fall in full-year 2021 relative to the prior year.

Given that most of MAHB's revenues are tied to airport traffic, Moody's expects the company's funds from operations (FFO) will be negative in 2021.

“Despite these near-term challenges, MAHB has been able to maintain a solid liquidity profile through various countermeasures including cost-saving initiatives, dividend suspensions and the deferral of all non-essential capital spending.

“Under Moody's base case scenario, MAHB's FFO to debt will recover to the mid-single-digit percentage in 2023, on the back of airport traffic recovery and cost-saving initiatives that will likely have a beneficial impact on the airport's post-pandemic profitability, ” Moody’s said.

Moody's passenger-traffic scenario presently assumes a solid recovery in domestic passenger traffic upon the easing of travel restrictions in the December quarter of 2021, supported by underlying demand for travel, as evidenced by the rebound observed in September and October 2020.

However, recovery to pre-pandemic traffic is unlikely until late 2023 to 2024, owing to the time likely required for a substantial resumption in international travel, which will depend on the successful rollout vaccines worldwide and a synchronised reopening of borders.

Around half of Malaysia's passengers are international travelers, which is higher than most of its rated peers in the Asia-Pacific region.

Similarly, Moody's expects airport revenue at SGIA to remain weak in 2021, given the resurgence in infection numbers in Turkey in May. That said, SGIA will likely be able to manage its own funding requirements, after factoring in the Turkish government's approval to defer concession payments and the moderation in the number of daily new cases in June.

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Moody's , MAHB , Covid-19 pandemic


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