SINGAPORE (June 29): Moody’s Investors Service has affirmed Malaysia Airports Holdings Bhd’s A3 issuer rating, with baa3 Baseline Credit Assessment. The outlook, however, remains negative.
In a statement today, Moody’s said MAHB’s A3 rating is attributed to its expectation of support from the Malaysian government if required, the dominant market position of MAHB’s network of airports in Malaysia, its good liquidity, as well as its access to capital markets, which will help the airport operator manage liquidity requirements throughout the pandemic.
MAHB’s negative outlook, meanwhile, reflects the downside risks of the uncertain impact of the pandemic on passenger traffic at the group’s airports over the next 12 to 18 months, said Moody’s.
The recovery in traffic will likely be heavily influenced by the success of infection containment and vaccine rollouts, key criteria outlined by the government in the National Recovery Plan (NRP) for resumption of domestic and international air travel, it noted.
“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 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,” it added.
It noted, however, that despite these near-term challenges, MAHB has been able to keep a solid liquidity profile through various cost-saving initiatives, dividend suspensions and the deferral of 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 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 synchronized reopening of borders,” Moody’s said.
It also noted that about half of Malaysia’s passengers are international travellers, which is higher than most of its rated peers in the Asia-Pacific region.
It further said that an upgrade of MAHB is unlikely in the near term. However, it said outlook could be altered to stable if there is evidence of a sustained improvement in traffic that would provide a clear path for recovery in the airport operator’s financial profile that is consistent with its rating level.
If there are signs of liquidity stress, or deterioration in operating conditions and setbacks to the vaccination rollout, MAHB’s BCA could be downgraded, causing MAHB’s A3 issuer rating to be downgraded.
Moody’s could also downgrade MAHB’s A3 issuer rating if Malaysia’s sovereign rating is downgraded, or if it sees a reduced likelihood of extraordinary support from the government.
