Singapore, April 23, 2021 -- Moody's Investors Service has affirmed Macrotech Developers Limited's
(MDL) Caa1 corporate family rating (CFR) and the Caa1 backed senior secured
rating of Lodha Developers International Limited's USD bonds guaranteed
by MDL.
The outlook on the ratings has been changed to positive from stable.
The rating action follows the completion of MDL's initial public offering
(IPO) and successful listing on the Indian stock exchanges on 19 April.
"The affirmation of MDL's Caa1 ratings and change in outlook
to positive reflects our view that proceeds from the recently concluded
IPO and other management initiatives can eventually improve MDL's
liquidity, which could then support a higher rating despite pandemic-related
operating challenges," says Sweta Patodia, a Moody's
Analyst.
"Successful completion of the IPO has broadened the funding base
for the company. The IPO and conclusion of the inventory financing
at Grosvenor Square, one of the company's projects in London,
in November 2020, also demonstrate MDL's improved financial
management," adds Patodia.
RATINGS RATIONALE
MDL raised around INR24 billion ($333 million) from its recent
equity offering, of which almost 80% of the proceeds will
be applied towards debt reduction. The management is currently
in the process of identifying specific tranches of debt that will be repaid
from the IPO proceeds.
MDL expects to receive around INR15 billion ($200 million) by way
of repayment of loans made to the promoter over the next 3-6 months.
The company expects to receive another $150 million-$250
million as proceeds from land sales and monetization of commercial assets
by March 2022. The management intends to use most of these proceeds
towards debt reduction.
As of 31 March 2021, MDL had around INR60 billion ($800 million)
of debt maturities at its India operations over the next 24 months.
MDL's liquidity could improve significantly following the completion
of these transactions even if its operating performance were to weaken.
MDL also has around GBP45 million ($60 million) of debt maturing
at Lincoln Square, one of its project in London, by March
2022. The company intends to service this debt out of fresh sales
made at the project. As of 31 March 2021, the company had
GBP121m of unsold inventory at the project.
Remote working, low interest rates and government tax incentives
will keep housing demand in India buoyant over the next 12-18 months.
This trend bodes well for real-estate developers such as MDL.
A virus resurgence in India, especially in MDL's main operating
market Maharashtra, has led to fresh lockdowns in the region.
This could affect the company's operating sales and collections
over the next few months. MDL's operating performance in
London also continues to be subdued because of pandemic-related
disruptions.
In terms of environmental, social and governance (ESG) factors,
MDL is exposed to effects of the pandemic on the operating environment
in India. Moody's considers this as a social risk.
In terms of the governance risk, Moody's expects MDL to remain
exposed to risks from concentrated ownership as the promoter group continues
to hold 88% of the company after the IPO. In addition,
the company's dividend policy might change following its public
listing. Payment of dividends, if substantial, will
reduce MDL's free cash flows, which remain exposed to the
deteriorating operating environment in India.
Nonetheless, Moody's believes that MDL's financial disclosures
will improve because the company will now have to comply with the disclosure
requirements as per listing regulations in India.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade the ratings if the company successfully executes
its ongoing fund-raising initiatives and uses the proceeds to address
its debt maturities, both in India and London, over the next
12-24 months. However, a sharp decline in MDL's
operating performance, which may result from a prolonged economic
lockdown in India, could constrain its rating.
Moody's could also revise the outlook to stable if MDL's liquidity
profile fails to improve and its debt maturities over the next 12 months
remain at elevated levels.
The principal methodology used in these ratings was Homebuilding And Property
Development Industry published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1108031.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Macrotech Developers Limited 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. It has also expanded into the London market with
two projects in the city namely, Grosvenor Square and Lincoln Square.
It is listed on the Indian stock exchanges, with the promoter group,
comprising the Lodha family and their respective investment vehicles,
owning around an 89.5% stake in the company.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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provides certain regulatory disclosures in relation to the provisional
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and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
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Sweta Patodia
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
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Vikas Halan
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
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