Published on 26 Dec 2019.
RAM Ratings has reaffirmed the following issue ratings of Malaysia Airports Holdings Berhad (MAHB or the Group):
Malaysia Airports Holdings Berhad
RM2.50 bil Senior Sukuk Programme (2013/2033)
RM2.50 bil Perpetual Subordinated Sukuk Programme (2014/2114)
Malaysia Airports Capital Berhad
RM3.10 bil Islamic Medium Term Notes Programme (2010/2025)
The reaffirmed ratings reflect the continued improvement in MAHB’s operating performance and credit metrics in FY Dec 2018 and 9M FY Dec 2019, and the high likelihood of extraordinary support from the Government of Malaysia (GoM). We expect MAHB to maintain its financial metrics through the coming year, although its longer-term credit profile will hinge on the outcome and finalisation of the ongoing regulatory reforms within the domestic airport sector.
The Group’s operating profit before depreciation, interest and tax rose a respective 8.8% and 8.6% in fiscal 2018 and 9M fiscal 2019. This had been spurred by stronger passenger traffic flows in MAHB’s domestic and Turkish airports, which collectively expanded a respective 4.1% and 5.1% in fiscal 2018 and 9M fiscal 2019. We note that the Group’s debt load lightened 6.7% to RM5.6 bil in fiscal 2018, thereby easing its adjusted gearing ratio to 0.64 times as at end-September 2019 (end-December 2017: 0.75 times). Its annualised adjusted funds from operations debt cover also improved to 0.29 times in 9M fiscal 2019 (fiscal 2017: 0.22 times).
The ratings continue to reflect MAHB’s status as the sole operator of all 39 GoM-owned airports as well as the high likelihood of extraordinary government support. MAHB plays a critical role as the operator of Malaysia’s international airports, and enjoys a strong relationship with the GoM by virtue of its ownership by Khazanah Nasional Berhad (the investment-holding arm of the GoM) and the Employees Provident Fund. These factors are complemented by healthy industry fundamentals amid domestic and global economic expansion.
On the other hand, the ratings are moderated by regulatory uncertainties in the local landscape. Due to the GoM’s fiscal constraints and the hefty funding required for airport expansion, it intends to relinquish its airport-development funding responsibilities to MAHB (and, potentially, third parties). The finalisation of the new tariff-setting Regulatory Asset Base (RAB) framework and MAHB’s operating agreements has, however, been protracted and is likely to face further delays. The former deviates from the mechanism under the existing operating agreements, and introduces traffic risk to MAHB if traffic forecasts diverge within 10% from estimates.
The opening up of the sector and the GoM’s general stance of breaking up monopolies in certain industries are likely to dilute MAHB’s market position. Nonetheless, the threat to MAHB is deemed manageable at this juncture given its vast experience. While the GoM’s fiscal constraints may mean more selective support for government-linked entities, we envisage MAHB to remain strategically important to the GoM. The Group is one of the four nationally strategic companies in Khazanah’s stable.
In the meantime, MAHB’s credit profile is also weighed down by hefty capex under the proposed RAB framework, which may weaken its credit metrics. That said, its improved credit metrics provide some buffer against heftier future capex. MAHB is also vulnerable to external events that may affect passenger flows and aircraft movements, and faces competition from other international airports in the region.
The Senior Sukuk’s rating reflects MAHB’s credit profile; the instrument ranks pari passu with all of the Group’s other senior unsecured borrowings. The Perpetual Sukuk is rated two notches below MAHB’s long-term corporate credit rating, to reflect the risk of deferrable profit distributions and the deeply subordinated right of the sukukholders to claims in the event of insolvency. The issue ratings under Malaysia Airports Capital Berhad – MAHB’s funding conduit – are linked to the Group’s credit profile because the Islamic structure provides recourse to MAHB through its obligations under a purchase undertaking.
Karin Koh, CFA
(603) 3385 2508
(603) 3385 2577
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Ratings on Malaysia Airports Capital Berhad