Fitch too downgrades Macrotech Developers to B minus, warns of more rating cuts

Fitch Ratings said on Friday it has downgraded leading real estate player Macrotech Developers Ltd (MDL) due to the concerns on liquidity management.

Two weeks ago, Moody's Investors Service had downgraded the corporate family rating of (MDL) earlier known as Lodha Developers Ltd to B3 from B2.

Fitch said it has downgraded MDL's long-term issuer default rating to B minus from B. It also downgraded the rating on company's 325 million dollars 12 per cent senior unsecured bond due in March next year to B minus with a recovery rating of RR4 from B/RR4.

Fitch has simultaneously placed all MDL's ratings on rating watch negative.

"The downgrade is due to the company's weak liquidity management. MDL has relied on funding from domestic non-bank financial institutions (NBFIs), including housing-finance companies, which are now shying away from lending to the property sector," said Fitch in a statement.

"The company's refinancing options have, therefore, narrowed as the onshore funding squeeze is coinciding with the maturity of its 325 million dollars bond."

Fitch said the change in domestic funding environment will 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 and Rs 5,000 crore in FY21, although it repaid debt of Rs 9,000 crore in FY18 and Rs 4,800 crore in FY19 when liquidity was easier.

"We believe MDL will need to rely on alternative sources such as private equity funds, possibly at a higher cost and under tighter conditions such as higher collateral cover, to displace its reliance on non-banking finance institutions in meeting its debt repayments," it said.