Auckland Intl Airport Lowered; Off S&PWatch.

MELBOURNE--(BUSINESS WIRE)--Standard & Poor's CreditWire 6/5/98-- Standard & Poor's today has lowered its long-term rating local currency rating on Auckland International Airport Ltd. (AIAL) to single-'A'-plus from double-'A'-minus and the short-term local currency rating to 'A-1' from 'A-1'-plus. The ratings are removed from CreditWatch with negative implications, where they were placed on May 22, 1998. The rating outlook is stable.

The downgrade results from the impact of a board decision to pay a NZ$135 million special dividend to existing shareholders on the condition that AIAL proceeds to a public listing. The payment of the dividend will result in increased debt with lower coverage levels. The rating reflects Auckland Airport's position as New Zealand's major international airport, its weakened financial position, and significant flexibility in their capital investment program.

Standard & Poor's placed AIAL on CreditWatch with negative implications as a result of the announcement in the New Zealand budget handed down on May 14, 1998, of the government's intention to sell its majority 51.6% share in AIAL through a public float. The key concern was a possible change in financial structure. The loss of central government ownership is not a factor in the downgrade.

AIAL operates an international and domestic airport in the North Island of New Zealand. Auckland is New Zealand's largest city. As the major international gateway, more than 75% of international travelers to New Zealand arrive or depart through Auckland Airport. New Zealand's isolated location, and island geography, provides underlying stability to AIAL's business base. Passenger numbers, which have grown at 6.7% per year in the past five years are expected to slow considerably in the next two years as a result of the Asian crisis, before picking up in the year to June 2000, based on a number of international events planned to take place in Auckland. The average growth in total passenger growth is forecast at about 4.4% per year in the five years to 2003.

Revenue sources are diversified with concession income improving as a result of the recently completed international terminal. Payment of the special dividend expected in July 1998 will cause net debt to double to NZ$303 million from NZ$153 million in 1997. The increased debt results in reductions to funds flow net interest coverage from the current very strong levels of 7.3 times (x) to about 3.8x in 1999, before recovering to above 4.0x. Net debt payback will increase to 4.3 years before slowly improving to about 3.8 years over the forecast period.

AIAL has a high degree of financial flexibility provided by a modular capital expenditure program that enables development to be paced with both income and demand levels. Capital expenditure forecast for the three years from 1999 to 2001 totals NZ$176 million, which includes essential capital expenditure for rehabilitation of the existing runway. If the effects of the Asian crisis continue for longer than expected, some of this capital expenditure can be deferred.

OUTLOOK: Stable.

The stable rating outlook reflects AIAL's solid business position and flexible capital expenditure program, which provide a solid foundation for the maintenance of its creditworthiness despite the slowdown in passenger numbers. No changes to the management structure or financial policies which would affect the creditworthiness of AIAL, are expected as a result of the initial public offering, Standard & Poor's said. ---CreditWire

    CONTACT:  Ian Greer, 61-3-9250-4706 (Melbourne)
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