Dec 03, 2022, 00:33 am
GMR Hyderabad International Airport Ltd.'s proposed partial tender offer to purchase up to US$140 million in outstanding debt will strengthen the company's capital structure and reduce financing costs. S&P believes the proposed tender offer is an opportunistic exchange because the Indian airport operator (GHIAL; BB-/Stable/--) is managing debt maturities well ahead of the notes' final maturity.
The tender offer is for a portion of GHIAL's outstanding US$300 million 5.375% senior notes due 2024 and US$300 million 4.75% senior notes due 2026. The airport operator will fund the offer through a 10-year domestic loan with a lower interest cost.
S&P expects the transaction to be conducted close to par, and the tender price will be set at a premium to the notes' current market prices. The company is not at risk of a conventional default in the next 12 months, even if investors do not accept the tender offer, in our assessment.
In our view, the proposed transaction is a proactive liability management exercise that will reduce GHIAL's financing costs and lengthen its debt maturity profile. As part of the transaction, the tendering of the 2024 notes would be given higher preference than the 2026 notes to extend the company's maturity profile.
In S&P's view, a rebound in passenger traffic will be a key driver of GHIAL's cash flow, supporting a recovery in financial performance. Total passenger traffic in the first half of fiscal 2023 (year ending March 31, 2023) was close to 10 million, with domestic traffic rebounding to 93% of that in the same period in 2019, and international traffic recovering strongly to 81%. S&P estimates total traffic will increase to about 21 million passengers in fiscal 2023, from 12.4 million passengers in fiscal 2022.
The stable rating outlook on GHIAL reflects our view that the company's ratio of operational cash flow to debt will improve to more than 5% on a sustained basis following the recovery in passenger traffic volumes.