RAM Ratings reaffirms MAHB’s ratings

KUCHING: RAM Ratings has reaffirmed the respective AAA/ Stable and AA2/Stable ratings of Malaysia Airports Holdings Bhd’s ( MAHB) RM2.50 billion Senior Sukuk Programme ( 2013/ 2033) ( senior sukuk) and RM2.50 billion Perpetual Subordinated Sukuk Programme ( 2014/2114) ( perpetual sukuk).

In a statement, it said, “We have also reaffirmed the AAA( s)/ Stable rating of the group’s RM3.10 billion IMTN Programme (2010/2025) and the P1(s) rating of its RM1.00 billion ICP Programme ( 2010/ 2017), issued via whol ly owned Malaysia Airports Capital Berhad ( MACB).

“The reaffirmation of the ratings is based on MAHB’s b e t t e r - t h a n- a nt i c ip at e d operating performance in 2016 ( despite unforeseen setbacks in its Turkish operations) and our expectation of continued government support for the group.

“MAHB’s rat ings ar e enhanced by a ‘high’ likelihood of extraordinary government support, on account of the Group’s vital role and strong relationship with the government of Malaysia (GoM).”

“While domestic passenger traffic at SGIA has regained some momentum, the more-profitable international segment has yet to demonstrate any clear sign of stabilisation”, said Kevin Lim, RAM’s head of Consumer and Industrial Ratings.

As a result, the Turkish operations’ adjusted operating profit before depreciation, interest and tax ( OPBDIT) declined 3.8 per cent y- o-y in the first nine months of the financial year 2016 ( 9MFY16), against its expectations of double- digit growth.

“On the other hand, the operating environment in Malaysia has shown signs of a turnaround following a twoyear downcycle, resulting in MAHB recording a 5.4 per cent rise in passenger traffic in 10M 2016 ( 0.5 per cent in FY15). Notably, improved sentiment subsequent to airline tragedies in 2014 fuelled a 7.3 per cent increase in the higher-yielding international passenger traffic,” Lim added.

This more than offset earnings pressures in Turkey, leading to a 18.2 per cent y- o-y jump in the hroup’s adjusted OPBDIT in 9MFY16.

“We expect MAHB’s funds from operations debt coverage to recover to 0.21 times for full-year 2016, after underperforming in the last few years.

“Moving forward, improving domest ic operations are anticipated to provide a cushion against earnings shortfalls stemming from the Group’s Turki sh operat ions,” it projected.

Meanwhile, RAM Ratings viewed the new passenger service charge ( PSC) structure, recently announced by the Malaysian Aviat ion Commission, as a negative development for MAHB.

“While the impact on its operating performance is expected to be limited (reducing MAHB’s OPBDIT by two to three per cent), the new PSCsetting mechanism represents a departure from the operating agreements signed by the GoM and MAHB in 2009.

“Based on the agreements, the GoM is required to compensate MAHB if PSCs imposed fall below agreed benchmark rates. The group is also entitled to a rate revision every five years based on the formula provided in the agreement. At this juncture, it is unclear if these clauses are still applicable or whether alternative compensation schemes will be put in place,” it explained.

The ratings continue to be supported by MAHB’s strong business position as an airport operator with a near-monopoly in Malaysia, operating all 39 airports owned by the GoM.

The ratings are further anchored by overall healthy i ndust r y fundament a l s. Passengers at airports under Malaysian operations steadily increased between 2008 and 2015 at a CAGR of 8.5 per cent.

“Moving forward, the recovery of Malaysia Airlines and robust growth of AirAsia Group are envisaged to fuel passengertraf fic growth. Meanwhile, despite recent events, the fundamentals of Turkey’s aviation sector are still expected to be sound in the long run – supported by a large population, a low aviation-penetration rate as well as the country’s strategic geographical location.

“The ratings are, however, moderat ed by MAHB’s susceptibility to event risk as air traffic is vulnerable to external events. This is illustrated by the dip in passenger traffic in Malaysia in 2014 and 2015 fol lowing twin tragedies involving Malaysia Airlines.

“Further, the group faces compet i t ion from other international airports within the Asia Pacific region. Operating in a regulated industry, MAHB’s performance is also subject to regulatory and political risks – as highlighted by the new PSC structure.

“The sen ior su ku k’s creditworthiness ref lects MAHB’s credit profile as it ranks pari passu with all of the group’s other senior unsecured borrowings. The perpetual sukuk, meanwhile, is rated two notches below MAHB’s corporate credit rating to reflect the risk of deferrable profit distributions and the deeply subordinated right of the sukuk holders to claims in the event of insolvency,” RAM Ratings said.