MAHB’s rights issue credit negative for company, total debt to rise 20% — Moody’s

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PETALING JAYA: Malaysia Airports Holdings Bhd’s (MAHB) proposal of a rights issue to raise RM1.3 billion to acquire a 40% stake in a Turkish airport and its management company is credit negative for MAHB, a Moody’s report said yesterday.

On Monday, MAHB proposed a rights issue of 274.8 million shares to raise RM1.3 billion, mostly to fund the €285 million (RM1.18 billion) acquisition of a 40% equity stake in the Istanbul Sabiha Gokcen International Airport (ISG) and its management company LGM Havalimani Isletmeleri Ticaret Ve Turizm AS (LGM) from joint-venture partner Limak Holding AS, a Turkish conglomerate.

Moody’s vice-president Ray Tay and associate analyst George Teng said MAHB’s total debt  — encompassing MAHB’s total debt and 60% of ISG’s debt —  would increase by around 20% after factoring in the remaining 40% share of ISG’s debt.

“We project that MAHB’s funds from operations or debt will deteriorate to 8% to 8.5% from our initial expectations of 9.5% to 10% for 2015,” the report stated.

The analysts noted that even though the Turkish aviation sector held significant growth potential and had double-digit growth rates over the past 10 years, ISG had not made net profits since it began operations in November 2009.

ISG reported a net liability position of €198 million (RM824 million) as of June 30, 2014.

Still, Moody’s noted that ISG had shown improvements as it gradually reduced its net losses to €20.6 million (RM86 million) for January to June 2014, an improvement from a net loss of €105.7 million for 2011.

ISG’s loss-making position in its early years of operation mainly reflected the depreciation and interest charges during the early ramp-up stage. Despite this, Moody’s does not expect ISG to be profitable within the next 12 to 15 months.

Moody’s said ISG raised most of its debt during the global financial crisis, resulting in high interest rates, and MAHB may take advantage of the currently low interest rate environment and its better credit quality relative to ISG to refinance ISG’s debt.


This article first appeared in The Edge Financial Daily, on November 14, 2014.