Published on 07 Sep 2020.
RAM Ratings has reaffirmed the AAA ratings of the various senior sukuk issued by Malaysia Airports Holdings Berhad (MAHB or the Group). The rating action reflects our expectation of a high likelihood of extraordinary support from the Government of Malaysia (GoM). This is underscored by the Group’s critical role as the operator of Malaysia’s international and domestic airports. While the effects of the COVID-19 pandemic are envisaged to weigh heavily on MAHB’s performance in the next two years, the impact is partly cushioned by a slew of countermeasures implemented by the Group. MAHB’s ability to weather a potentially prolonged industry downturn is further supported by the GoM’s supportive stance in the negotiation of terms under the soon-to-be-finalised operating agreements.
The aviation and tourism sectors are among the industries hardest hit by the COVID-19 pandemic, with movement restrictions and border controls by various countries since 1Q 2020 in a bid to contain its spread. However, the lifting of interstate travel restrictions in Malaysia on 10 June 2020 has led to some recovery in domestic travel. That said, the much more profitable international passenger traffic segment remains severely depressed as international borders are still mostly closed.
MAHB’s operations in Turkey, i.e. Sabiha Gokcen International Airport (SGIA, the second biggest airport in Turkey), have been less affected. This is mainly due to the early resumption of domestic and international flights (since 1 and 11 June, respectively) following the airport’s closure in late March. To some extent, SGIA’s domestic-centric passenger base (circa 60% of total passengers) is anticipated to support the airport’s recovery.
All said, we do not expect a full recovery in passenger traffic volumes until at least 2023. Unless vaccines against COVID-19 can be widely available, some form of international travel restrictions may persist to avoid a resurgence in infections. Lingering fears of the coronavirus and diminished disposable incomes amid a feeble economy are also likely to limit air travel. At the same time, businesses may well cut non-essential corporate travel amid the new norm of remote working and virtual meetings. Meanwhile, financially battered airlines have grounded flights and drastically reduced flight routes and frequency.
Against this backdrop, MAHB has trimmed its capital expenditure (capex) to RM300 mil per year (from the earlier budgeted RM4.0 bil for 2020-2022), besides its target of achieving at least a 20% cut in operating costs in 2020 and 2021. Concurrently, the Group is looking at selling its 11% stake in GMR Hyderabad International Airport Ltd. These are, however, unlikely to fully mitigate the stress on MAHB’s earnings. Its operating profit is envisaged to stay well below its pre-crisis levels. Similarly, the Group’s funds from operations debt cover is expected to remain weak at around 0.10 times in fiscal 2021 (fiscal 2019: 0.28 times) while its gearing ratio is projected to edge up to 0.71 times as at end-December 2021 (end-December 2019: 0.63 times).
On a brighter note, there have been some positive developments on the regulatory front. After repeated delays, new operating agreements between MAHB and the GoM are likely to be signed by end-2020. While not yet finalised, the terms of the new agreements are understood to be tailored to ensure MAHB will be able to cope with the effects of the coronavirus pandemic and preserve its financial viability. MAHB’s ratings will be reassessed once there is more clarity on these new agreements.
While receivables collections have deteriorated somewhat of late following the extended credit period offered by MAHB, we believe overall collection risk is still manageable. As at end-June 2020, about 44% of its trade receivables stemmed from airlines; those from airport tenants and related to its Turkish operations constituted another 20% each. Some 34% of receivables from airline customers was more than 180 days overdue (end-March 2020: 27%), although most of these pertain to its dispute with AirAsia on passenger service charges.
Notably, MAHB’s liquidity has remained strong, with about RM2.3 bil of cash and liquid instruments against RM1.4 bil of short-term debts as at end-June 2020 (including RM1 bil of Islamic MTN that matured in August 2020).
Malaysia Airports Holdings Berhad
RM2.5 bil Senior Sukuk Programme (2013/2033)
RM2.5 bil Perpetual Subordinated Sukuk Programme (2014/2114)
Malaysia Airports Capital Berhad
RM3.1 bil Islamic Medium Term Notes Programme (2010/2025)
(1) The rating of MAHB’s RM2.5 bil Senior Sukuk Programme reflects the Group’s credit profile; the instrument ranks pari passu with its senior unsecured borrowings.
(2) MAHB’s RM2.5 bil Perpetual Subordinated Sukuk Programme is rated two notches below its long-term corporate credit rating, to reflect the risk of deferrable profit distributions and the deeply subordinated rights of the sukukholders to claims in the event of insolvency.
(3) The rating of MAHB’s RM3.1 bil Islamic MTN Programme (under Malaysia Airports Capital Berhad) is linked to the Group’s credit profile because the Islamic structure provides recourse to MAHB through its obligations under a purchase undertaking.
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Published by RAM Rating Services Berhad
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Ratings on Malaysia Airports Holdings Berhad