November 23, 2021 (MLN): Fitch Ratings forecasts an improving operating environment for Asia-Pacific (APAC) airports in 2022 as international travel resumes, with tourism returning faster than business travel, the American credit rating agency noted in its latest report on Monday.
Fitch also expects toll roads and ports to normalize as the demand and supply equilibrium is being gradually restored, and has a neutral outlook on these two sectors.
Both toll roads and seaports have in general been less badly affected during the Covid-19 pandemic, and have demonstrated strong resilience due to their essential characteristics in transporting goods and critical services. To note, Asian ports have registered strong throughput growth in 2021, supported by surging consumer spending and supply-side restocking. The total cargo volumes of ports in China surged by 8.9% YoY from January to September. Australia’s ports recorded growth, benefitting from strong commodity prices.
The ramping-up of vaccinations and availability of booster shots are paving the way for a gradual return to normal for many Asian countries. Travel restrictions have been easing, and a few countries such as Australia, Thailand and Indonesia have reopened or been set for reopening, which will revive international travel and rejuvenate tourism. The report sees a recovery in Australia, India, and Indonesia only in 4Q24.
That said, Fitch does not expect a full recovery of air traffic in APAC as a whole in 2022 because some countries – China in particular – might stick with a low-tolerance approach to Covid-19 cases and delay reopening.
Speaking of heightened inflation, the report expects rising inflation will be of lesser concern as many transportation issuers have the ability to pass down costs through inflation-linked pricing power under contracts. While this mounting inflation might potentially spur central banks to raise rates, which would create uncertainty around refinancing and costs for issuers with upcoming bullet maturities. However, this could be offset partially by greater investor appetite in inflation-protective infrastructure assets.
The report expects an increasing need of the Public-Private Partnership (PPP) model due to the constraints in public resources in developing countries thus they can rationalize risk-sharing mechanisms and reduce project risk to attract private investors.
Meanwhile, investors’ appetite for toll-road assets appears to have returned, which will benefit the budget-tight governments in developing economies and help meet the investment funding gap.
Fitch’s portfolio has increased from 17 to 21 issuers in 2021, comprising mostly investment-grade companies and with only four sub-investment-grade issuers. The rating outlook distribution has remained largely stable, with a mix of both negative and positive movements.
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