Moody's Downgrades MAHB Due To Challenges In Its Turkey Unit

KUALA LUMPUR, July 27 (Bernama) -- Moody's Investors Service has affirmed the A3 issuer rating of Malaysia Airports Holdings Bhd (MAHB) and changed its outlook to negative from stable due to challenges in its Turkey unit. "The change in outlook principally reflects heightened operating challenges for its subsidiary, Sabiha Gokcen International Airport (SGIA, unrated), which owns and operates the second largest airport in Istanbul, Turkey," it said in a statement. Vice-President and Senior Analyst Ray Tay said the rating agency expected SGIA to experience a material decline in passenger traffic growth in the next 12 to 18 months, following the coup attempt that ended on July 16, as well as, the terrorist attacks that occurred earlier this year. "As such, growth in passenger traffic at SGIA could decline to low single-digits for 2016 and potentially 2017, and international travel in particular, will likely be hit. "Passenger service fees for international passengers are much higher than those for domestic passengers," said Tay. Moody's said the expected weakness in the Turkish operations would be occurring at a time when MAHB's Malaysian operations are experiencing modest growth following a series of airline disasters that occurred in 2014, as well as, the completion of route rationalisation by Malaysia Airlines Bhd in 2016. The rating house projected passenger traffic at the Malaysian operations to grow by low to mid-single digit in 2016 and 2017 but to improve after that period. Previously, traffic growth at SGIA -- which was at least in the high teens over the past two years -- provided a mitigant against the slow recovery in passenger traffic growth at MAHB's operations in Malaysia. "For these reasons, we lowered the baseline credit assessment (BCA) to baa3 from baa2 reflecting our expectation of a weaker financial profile over the medium-term compared to previous expectation," said Tay. The negative outlook reflected the high degree of uncertainty over the next 12 months associated with passenger growth at SGIA, he said. An upward rating trend is unlikely, given that MAHB's A3 rating is at the same level as the sovereign rating for the Government of Malaysia and the negative outlook on MAHB's rating. Nevertheless, the outlook could be changed to stable if the company recorded traffic growth of at least mid-single digit at its Malaysian airport operations, and high single-digit at SGIA and/or improve its adjusted funds from operations (FFO)/debt to above 9-12 per cent and its FFO interest coverage to above 3.15x on a sustained basis, it said. Additionally, the BCA could be raised to baa2 if MAHB demonstrates its ability to generate free cash flow (operating cash flow less dividends and capital expenditure) on a consistent basis. MAHB operates five international, 16 domestic and 18 short take-off and landing airports in the country. Apart from SGIA in Turkey, MAHB also has an airport investment in India (Baa3 positive). The key contributor to its profits and cash flow is the Kuala Lumpur International Airport, which opened in 1999, and handled about 48.9 million passengers in 2015 while SGIA handled 28.3 million passengers in 2015. MAHB also operates ancillary businesses in locations surrounding the airport in Kuala Lumpur including agricultural plantations and hotel accommodation. -- BERNAMA