Fitch downgrades Lodha Developers on inability to reduce debt

Fitch Ratings has downgraded city-based realty player Lodha Developers by a notch due to its inability to reduce debt.
The downgrade reflects Lodha's inability to reduce its leverage, as measured by net debt or adjusted inventory, to a level appropriate for its previous rating, the rating agency said in a statement here.
Fitch has also downgraded the long-term rating on Lodha's USD 200 million senior unsecured notes due in 2020 to 'B' from 'B+'.
According to Fitch, the company's leverage had increased to 80 per cent by December 31 last year from 76 per cent at March 31, 2015 and 65 per cent at 2013-14, as the company continued to ramp up the pace of construction in its property projects in spite of lower-than-expected pre-sales and cash collections over the last 12-18 months.

"The negative outlook reflects the heightened liquidity risk that Lodha may face in the short-term together with the risk that leverage will continue to remain high at above 80 per cent - if pre-sales and cash collections continue to under-perform our expectations, or if there are significant cash calls from its 40 per cent-owned London joint venture," it said.
"We do not expect Lodha to be able to deleverage significantly over the next 12 months using its internally generated cash flow. The company has continued to lend money to its London joint-venture, which is in the very early stages of development and has a high project-debt burden. A substantial amount of the London project debt falls due in the next six months, mostly in December," it added.

Fitch believes that Lodha may choose to support London project-debt maturities (although it has no obligation to do so) if it is unable to secure offshore refinancing, given the significant investments it has already made.

Lodha's contractual debt maturities balloon to over Rs 3,500 crore in 2017-18, and could significantly increase liquidity risks if not addressed early, it said.
"However, in 2016-17 only Rs 80 crore out of Lodha's total debt of Rs 14,400 crore at December 31, 2015 falls due, which we expect the company to be able to meet in light of access to domestic credit markets which is still satisfactory. The company also had over Rs 1,500 crore of undrawn credit facilities at 2015-16," the report noted.

The company is currently developing around 43 million sq ft of prime residential real estate globally with the largest land reserves in the Mumbai Metropolitan Region.
In 2013, it extended its international footprint with the acquisition of the landmark MacDonald House at 1 Grosvenor Square in Prime Central London from the Canadian Government for a consideration of over Rs 3,100 crore.