Moody's downgrades Lodha Developer's ratings

New corporate family rating at Ba3, indicating non-investment grade

Ratings firm Moody's Investors Service has downgraded the corporate family rating of Mumbai based real estate company Lodha Developers to B1 from Ba3.

Moody's has also downgraded the senior unsecured debt rating of the US dollar denominated bonds issued by Lodha Developers International Limited and guaranteed by Lodha Developers to B1 from Ba3.

Ba3 ratings are assigned to those bonds which are considered non-investment grade. Moody's Corporate Family Ratings (CFR) are opinions of a corporate family's ability to honor all of its financial obligations.

Moody's said the outlook on the ratings is negative.

"The downgrade reflects our expectation that the company's credit metrics will fail to improve to a level more appropriate for its ratings over the next 12-18 months. The company's operating performance will remain well below our original expectations at the time we assigned the ratings for the first time in November 2014 and also below our reduced expectations in June 2015", says Vikas Halan, Moody's vice president and senior credit officer.

The company made operating sales of Rs 6430 crore for FY 2016 against Moody's expectation of Rs 900 crore to Rs 9300 crore, it said.

Cash collections of Rs 6200 crore made during the year, though higher than last year's collection by 14 per cent, were lower than Moody's expectation of Rs 7500 crore to Rs 8000 crore for fiscal 2016.

The weak operating performance has also resulted in the increase in borrowings to Rs 13300 crore as of 31 March 2016, compared to Rs 11800 crore a year ago, it said.

"The management targets to achieve Rs 9000 crore in cash collections in fiscal 2017. A substantial portion of the collection is expected to come from projects such as - The Park and World Towers. The company also intends to collect a sizeable amount from sales made at the Palava City. Collections, however, will be a function of construction progress at these projects," it said.

"The negative outlook reflects a challenging operating environment for real estate companies in India and the company's weak credit metrics and liquidity position," Moody's said.

When contacted, a Lodha spokesperson said: ""Moody's rating review is in relation to our international (USD) bond. Our company's local (Indian) debt continues to enjoy high rating of A/A- from leading Indian agencies including India Ratings (Fitch) and Brickworks. In FY 15-16, we had collections of over Rs. 6200 crore, delivered almost 6500 homes to customers and spent over Rs. 3000 crores on construction. We have been India's largest developer for four consecutive years and look to further grow our business in this financial year."

 

WEAK Liquidity profile

Moody's said the company needs to refinance GBP75 million by June 2016 and another GBP225 million by December 2016.

"These debt maturities are with respect to the company's London assets. Such large debt maturities are exposes the company to refinancing risk, which gets heightened because of uncertainties surrounding Britain's possible exit from the Euro zone," it said.

Moody's said the company is in advanced stages of refinancing its debt maturing in June 2016 and it expects them to be able to refinance the same. "Nonetheless, the refinancing risk will remain as the December maturity approaches," it said.

In addition, the company had, debt maturing over the next 12 months of Rs 1640 crore in India as of March 2016. Against this the company has indicated that it has already arranged for Rs 1500 crore of facilities that have been sanctioned by banks and remain undrawn. In addition, the company also had cash and cash equivalents of Rs 300 crore as of March 2016.

"We expect the company to continue to access project construction loans for refinancing these borrowings. In absence of substantial progress on refinancing, the

ratings will remain under pressure," moody's said

Moody's said an upgrade in the ratings is unlikely, given the negative outlook. "The outlook could be moved back to stable if there is a substantial reduction in the debt levels and improvement in liquidity either by way of improvement in operating performance or equity issue/ asset sales.

"The ratings could be downgraded further if the company fails to reduce its borrowings materially over the next 6 months. The ratings could also be downgraded further if the operating performance and liquidity position continues to decline or the company engages in any material debt-funded land acquisitions," it said.