Buddha Air looking to raise bank facilities worth NPR 629.2 Million and USD 17.1 Million; ICRA Nepal grades the issue

Fri, Apr 10, 2020 2:16 PM on Credit Rating, External Media, Latest,

ICRA Nepal has placed the ratings assigned to the bank loan limits of Buddha Air Private Limited (Buddha or the company) on watch with negative implications. These ratings include the rating of [ICRANP] LA-@ assigned to the company’s long-term loans and the rating of [ICRANP] A2+@ assigned to the company’s short-term loans (including non-fund based limits). The rated facilities include long term and short term loans worth NPR 629.20 Million and USD 17.10 Million.

The ratings for Buddha have been placed on watch with negative implications, given the expected impact of Covid-19 on the Nepalese tourism sector and hence the domestic aviation sector. The initially assigned ratings drew comfort from the Government initiatives in celebrating 2020 as a Visit Nepal Year which has been cancelled recently, amid the global coronavirus outbreak. The outbreak resulted in a marginal decline in tourist arrivals in January-February 2020, with a sharp decline expected in the months to follow. The period of March-May is considered the second peak season for tourism-related activities in Nepal, given the conducive environment. Hence, the seasonality in revenues for tourism sector entities is likely to accentuate the level of impact.

Additionally, a decline in the arrival of foreign tourists would result in lower USD earnings, which offer better margins to the players. Since the local currency fare has witnessed a sharp decline in recent years with increasing competition, USD earnings had supported the profitability of the aviation sector players, including Buddha, in recent years. Buddha also carries a sizeable USD loan and operational cost obligations and hence this would add up to forex risks as well.

Incorporated in 1996, Buddha Air Private Limited (Buddha) operates primarily in the domestic trunk routes of Nepal, with limited presence in international aviation to two routes, namely Varanasi and Kolkata from Kathmandu, Nepal. Buddha is the largest and the longest operating private sector airline in Nepal. Mr. Surendra Bahadur Basnet is the company’s Chairman, and his son, Mr. Birendra Bahadur Basnet, is the Managing Director.

Source: ICRA Ratings Nepal