Fitch too downgrades Macrotech Developers on low liquidity concerns

Global rating agency Fitch Ratings on Friday downgraded long-term issuer rating of Macrotech Developers (earlier Lodha Developers) by a notch to B- citing the real estate player’s weak liquidity management. This is the firm’s second rating cut this month.

Fitch has also downgraded the rating on the company’s $325-million senior unsecured bond due in March 2020 to B- with a recovery rating of ‘RR4’ from ‘B’/’RR4’, and has simultaneously placed all ratings on rating watch negative.

“The downgrade is due to the company’s weak liquidity management. Macrotech has relied on funding from domestic non-bank financial institutions (NBFIs), including housing finance firms, which are shying away from lending to the property sector. The company's refinancing options have, therefore, narrowed as the onshore funding squeeze is coinciding with the maturity of its $325-million bond,” Fitch said.

The change in the domestic funding environment would present the company with significant challenges in meeting its debt maturities of Rs 1,600 crore in the remainder of the financial year ending March 2020 (FY20) and Rs 5,000 crore in FY21, although it repaid a debt of Rs 9,000 crore in FY18 and Rs 4,800 crore in FY19 when liquidity was easier, Fitch said. The risks are mitigated by the appetite of some domestic banks and alternative financing providers such as private-equity funds that continue to lend to the firm due to its strong market position, good quality projects, and large unencumbered land bank. 

Fitch said the risks around Macrotech’s ability to meet domestic debt maturities of Rs 2,000 crore, Rs 5,000 crore, and Rs 4,600 crore in FY20, FY21, and FY22, respectively, are rising, following tighter liquidity among NBFIs, which have been the key funding source for Macrotech and other realty players. Fitch said borrowings from NBFIs accounted for 56 per cent of Macrotech’s outstanding domestic debt at FY19, and 58 per cent of domestic debt due in FY21. 

However, a Lodha spokesperson said that $ bond is a modest amount, equal to half of the value of one of its towers at World Towers and arrangements for its repayment are quite advanced, even though the bond is due after eight months. “Once the definitive documents for this bond refinancing are in place in the next eight to 10 weeks, we will approach the rating agencies for an upgrade of our rating,” he said.  He said Macrotech’s India business continues to perform strongly with new residential sales of Rs 600 crore a month and its market share continues to grow.

“Further, our office and retail business has a strong momentum and we plan to be ready for a REIT in a couple of years. We also expect that the current tight credit conditions in India are not permanent and will improve over the next six to nine months as the actions of the Reserve Bank of India and the government play out,” he said.