Singapore, May 02, 2019 -- Moody's Investors Service has affirmed the B2 corporate family rating
of Lodha Developers Limited (LDL).
Moody's has also affirmed the B2 senior unsecured rating of the US dollar-denominated
bonds issued by Lodha Developers International Limited and guaranteed
by LDL.
Moody's has changed the outlook to negative from stable.
RATINGS RATIONALE
"The change in outlook to negative reflects the weakening in LDL's
liquidity profile, because of lower than expected operating sales
and delays in execution of its planned asset sales, both in London
and India," says Saranga Ranasinghe, a Moody's
Assistant Vice President and Analyst.
Operating sales in both geographies in which LDL operates, Mumbai
and London, were weaker than Moody's expectations in the nine
months to December 2018 by around 20% and 50%, respectively.
Sales in Mumbai, which were affected by the tight liquidity conditions
of housing finance companies in India during the September 2018 to December
2018, have picked up in the quarter ended March 2019. However,
Moody's expects the weakness in London to continue because of Brexit
related uncertainties.
In the absence of improvement in operating sales in London, LDL
will be reliant on asset sales in both India and London to meet its liquidity
needs.
The company has a GBP290 million (GBP 260 million drawn as at 31 March
2019) loan maturing in December 2019 (extended from August 2019),
$324 million in bonds maturing in March 2020 (after the $1
million buyback), and a further GBP517 million loan maturing in
March 2021. The company's cash balance and expected operating
cash flows will not be sufficient to meet these debt repayments.
However, the company continues to pursue plans to monetize some
of its assets in India and London for the purpose of repayment of these
amounts.
LDL plans to repay the GBP290 million project loan with the proceeds from
sales at the 48CS project, the property in London for which this
facility was taken. LDL has extended the repayment of this facility
to December 2019 from the initial maturity date of August 2019,
which should provide the company with more time to carry out sales at
the project to shore up liquidity to repay the facility. At the
end of April 2019, sales at this property reached GBP260 million,
covering around 90% of the facility amount. Cash collection
on this project has already begun, with the handover of units starting
in April 2019.
LDL has also completed construction of income-generating commercial
assets in India that could be sold to third parties to raise funds to
address its liquidity needs. Moody's expects the company
to generate around $250 million from the sale of a commercial building
in New Cuff Parade and a retail mall in Palava, which would provide
the company with net proceeds of around $130 million after retiring
around $120 million of debt.
LDL is in the midst of divesting a 28% equity stake in its London
properties to a third party, which could allow the company to carry
out further stake reductions. However, there have been delays
in the receipt of funds from the equity stake sale. The company
has already received GBP25 million in proceeds. This amount is
substantially lower than Moody's expectations. Given the
delays in receiving funds for the stake sale, Moody's now
expects LDL to receive the remainder of the funds in July and September
2019. Any proceeds from further stake sales will partially mitigate
the liquidity needs of the company.
"While LDL has assets that it could sell to improve its liquidity
position, uncertainty remains around the company's ability
to execute these asset sales in a timely manner and at values that would
be sufficient to address its liquidity needs," add Ranasinghe.
The company has debt maturities of around INR22 billion in India over
the next 15 months, which Moody's expects will be rolled over,
given the company's track record of rolling over these facilities in the
past and its large unencumbered land bank at Palava. As at 31 March
2019, the company also had around INR12 billion of sanctioned and
undrawn credit lines to cover the debt maturities in India.
LDL's B2 corporate family rating reflects the company's position as the
largest developer of residential properties in India and the size of the
company's land bank. The company's rating also takes into account
the high quality of its projects under construction, combined with
its strong execution capability. In addition, the rating
is supported by the diversity of the company's project portfolio,
with projects in London and India, and the projects in India at
multiple phases and price points. LDL's credit profile is
constrained by its weak liquidity position. LDL has large debt
maturities over the next 12-18 months that are significantly higher
than the company's cash balance and expected cash flow from operations.
The negative ratings outlook reflects uncertainty around the execution
of LDL's asset sales in a timely manner and at values that will
be sufficient to address the company's refinancing needs.
Given the negative outlook, LDL's ratings are unlikely to
be upgraded over the next 12-18 months. The outlook is unlikely
to return to stable so long as the company's ability to repay its
near-term debt remains contingent upon its ability to execute asset
sales. The outlook could return to stable if the company demonstrates
its ability to execute asset sales in a timely manner.
On the other hand, Moody's could downgrade the ratings if
LDL's liquidity fails to improve because a) collections and operating
sales in India deteriorates; or b) operating environment in London
deteriorates further resulting in lower than expected collections from
already executed sales; or c) the company fails to execute asset
sales of at least $300 million over the next six months.
The principal methodology used in these ratings was Homebuilding And Property
Development Industry published in January 2018. Please see the
Rating Methodologies page on www.moodys.com for a copy of
this methodology.
Lodha Developers Limited (LDL) is the largest real estate developer in
India by sales of residential apartments. The company is focused
on residential developments in the Mumbai Metropolitan Region, with
some projects in nearby Pune.
LDL and its promoters expanded into the London market by acquiring two
properties that are now in the process of development.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Saranga Ranasinghe
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Laura Acres
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
