Moody’s Investors Service has assigned an Aaa issuer rating to Changi Airport Group (CAG) for the first time.

The ratings agency has also assigned a first-time provisional (P) Aaa senior unsecured rating to the group’s multi-currency medium term notes (MTN) programme, as well as “stable” in its ratings outlook.

In addition, Moody’s has assigned a baseline credit assessment (BCA) of a2 to the group.

The Aaa issuer rating reflects Moody’s BCA of a2 and a five-notch uplift based on the high likelihood of support from, and high level of dependence with the Singapore government under Moody’s joint-default analysis approach for government-related issuers.

The Singapore government has been rated Aaa and “stable” in Moody’s ratings outlook.

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"The BCA recognizes CAG's underlying credit strengths, which include its position as Singapore's sole airport operator, its conservative and prudent balance sheet management, and its high financial flexibility," says Ray Tay, a Moody's senior vice president.

“These factors will help buffer CAG's credit profile against the current turbulence in the sector," adds Tay.

The BCA also considers Moody's expectation of the solid demand for travel post-Covid.

Moody’s expectation of a high likelihood of government support for CAG reflects its strategically important role in owning and operating Changi Airport.

It also plays a pivotal role in enhancing Changi’s air hub status for Singapore – which is a highly open economy that depends on the cross-border trade of goods and services.

CAG also operates Seletar Airport, the only other civilian airport in Singapore.

The assumption of support also factors in the government’s full and direct ownership of CAG, its low tolerance for reputational and contagion risks, as well as its likelihood of financial support for CAG.

“The government's decisive and fast response to the pandemic impact on the aviation sector in general, and to CAG, signals the importance of this sector, and hence, CAG,” reads the statement from Moody’s.

CAG has shown a strong financial profile based on its historical records.

It has a ratio of adjusted funds from operations (FFO)/debt exceeding 20% in the three years before the Covid-19 outbreak.

Moody’s says it expects this ratio to be weak in the FY2021 and FY2022. However, it also expects CAG’s financials to recover strongly post-Covid, reaching high teens in FY2023 to FY2024.

“This trajectory incorporates our assumptions of the aviation sector's recovery in 2023-2024; and, a measured approach to the capital spending plan to increase capacity via the Changi East expansion project, which is currently partially paused, and which factors in a balanced diversified funding plan,” writes the team.

See: Changi Airport to raise aeronautical fees to help fund Changi East development, improve existing terminals


The strong ratings also come as CAG retains an “excellent liquidity profile” despite the pandemic’s impact on cash flow.

Although cash holdings declined to around $1.9 billion as of December 2020, from around $2.4 billion as of the end of FY2020, the cash buffer remains strong and is slightly more than borrowings as of December 2020.”

“CAG also demonstrated its market access and proactive liquidity management by completing sustainability-linked revolving credit facilities of $2 billion with bank lenders. The cash balance and additional liquidity will be more than sufficient to cover its likely capex requirements of around $900 million over the next 12 months and debt pre-payment of around $300 million in 2021,” says the team.

Environmental, social and governance (ESG) factors

In its ratings report for CAG, Moody’s says it has considered ESG factors for CAG, as it regards the Covid-19 outbreak as a social risk under its ESG framework given the implications for public health and safety.

Changi Airport’s management of frontline operations and collaboration with the government authorities and other key stakeholders amid the pandemic support the airport’s social and governance profile, says the ratings agency.

Factors that could lead to a change in CAG’s ratings

CAG could receive an upgrade in its BCA if its adjusted FFO/debt exceeds 25% on a sustained basis.

The upgrade – though unlikely to be given during the pandemic – could be possible should there be further clarity on the funding plan for Changi East.

On the other hand, its BCA could be downgraded if CAG’s adjusted FFO/debt falls below 16% to 18% on a sustained basis post-Covid-19.

A downgrade of Singapore’s sovereign rating could also result in a downgrade of CAG’s ratings.

“Moody's could downgrade CAG if we expect support from its shareholder to weaken over time, although we consider this scenario to be unlikely,” says the ratings agency in its April 28 report.