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Rating Action:

Moody's affirms Macrotech Developers' Caa1 rating; changes outlook to stable

13 Nov 2020

Singapore, November 13, 2020 -- Moody's Investors Service has affirmed Macrotech Developers Limited's (MDL) Caa1 corporate family rating (CFR) and Caa1 senior secured rating of Lodha Developers International Limited's USD bonds guaranteed by Macrotech Developers Limited.

At the same time, Moody's has changed the outlook on the ratings to stable from negative.

The rating action follows MDL's results announcement for the quarter ended 30 September 2020 and the repayment of the construction loan for Grosvenor Square (GSQ) -- one of its London projects -- through a combination of recent collection proceeds and a four-year inventory financing facility.

"The ratings affirmation and change in outlook to stable reflect MDL's improved liquidity position following (1) the refinancing of its construction loan for GSQ, and (2) a gradual recovery in the company's operating performance, which will result in higher earnings and cash flow," says Sweta Patodia, a Moody's Analyst.

RATINGS RATIONALE

Even though MDL's liquidity position has improved significantly over the last six months, the company continues to face sizeable debt maturities of around $800 million in both India and London over the next 18 months.

MDL plans to meet its upcoming obligations via its internal cash flow generation and through obtaining further extensions on its project loans in India, keeping the company exposed to the uncertain macroeconomic environment.

While the company's operating performance has started to recover in India following a sharp slump in the quarter ended June 2020, this is partly due to pent-up demand and the ongoing festive season in India. But local market conditions remain favorable for home buyers as interest rates and property prices are at multi-year lows. This environment will continue to support housing demand in the country at least over the next 12 months.

Meanwhile, the company's operating performance in London is yet to pick-up. Even though the pace of new sales remaining slow, the company has managed to collect around GBP280 million from existing sales at GSQ in the quarter ended September 2020 despite the pandemic. Moody's expects sales to pick-up gradually over the next few months as the economy starts to recover.

While the company is working on securing other financing sources, they will only be executed over the next few months. As such, lower-than-expected sales and collections would weaken its internal cash flow generation and exert pressure on the company's liquidity and rating.

MDL's Caa1 rating primarily reflects a high degree of refinancing risk although Moody's positively notes the steps taken by the management to improve the company's liquidity over the last six months. The ratings also consider the company's position as the leading developer of residential properties in India and the large size of its land bank.

ESG considerations

In terms of environmental, social and governance (ESG) factors, the rating incorporates governance risks arising from the company's concentrated ownership structure and its aggressive financial policies.

Outlook

The stable outlook on MDL's Caa1 CFR reflects Moody's expectations that a gradual recovery in operating sales and collections will keep its liquidity needs manageable over the next 12-18 months.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The rating may be upgraded to B3 if the company is able to maintain the current momentum in its operating sales and collections in India, such that they recover to pre-pandemic levels of around INR65 billion - INR70 billion per year, while its liquidity requirements remain manageable over the next 12-18 months. An improved operating performance in London will also be imperative for an upgrade.

The rating may be downgraded to Caa2 if the company's operating sales and collections fail to recover in line with Moody's expectations and weaken its liquidity position. Alternatively, further instances of debt moratoriums and extensions that allow the company to avoid a payment default or result in any economic loss to lenders could be construed as a distressed exchange and pressure the ratings.

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. The company — along with its promoters — has also expanded into the London market and has two projects in the city namely, Grosvenor Square and Lincoln Square.

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.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

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
Client Service: 852 3551 3077

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.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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