Singapore, March 19, 2015 -- Moody's Investors Service has assigned a definitive Ba3 corporate family
rating (CFR) to Lodha Developers Private Limited (LDPL) and also assigned
a Ba3 rating to the notes issued by Lodha Developers International Limited
and guaranteed by LDPL.
The outlook on the ratings is stable.
RATINGS RATIONALE
Moody's assignment of the definitive rating follows the company's completion
of the bond issuance and Moody's review of the final terms and conditions
of the bonds.
The provisional (P)Ba3 rating was assigned on 24 November 2014.
Moody's rating rationale was set out in a press release published on the
same day.
"LDPL's rating remains supported by its position as the largest
residential property developer in India in terms of contracted sales,
the high quality of its projects under construction and its strong execution
capability, as well as its track record of delivering high-rise
apartments," says Vikas Halan, a Moody's Vice
President and Senior Credit Officer.
The rating is further supported by the company's strong ability to sell
its products, as evident from its performance during the downturn
in the Indian real estate market over the past two years.
The rating is also supported by the diversity of its project portfolio
with 49 projects, in multiple phases, contributing to sales
for the next five years.
On the other hand, the rating is constrained by LDPL's weak margins
and credit metrics, both of which are expected to improve as it
starts recognizing higher revenues from its current projects and as the
subsequent phases of its Palava City development project attract higher
prices.
"The rating is also constrained LDPL's concentration in the
Mumbai Metropolitan Region and its focus on residential properties.
We expect the company's liquidity will improve following the bond
issuance and that its credit metrics will strengthen over the next two
years, as key projects reach revenue-recognition thresholds,"
says Halan.
As of end-December 2014, the company's reported secured
debt to total assets ratio was about 39%. The bonds will
be subordinated to the claim of these secured lenders and hence are exposed
to structural subordination risk.
"Nevertheless the bonds are rated at the same level as LDPL's Ba3
rating, as the structural subordination risk is largely mitigated
by protection provided to bondholders under the bond covenants that require
the company to hold land at Palava City -- on an unencumbered
basis -- with a value 4.0x the amount of the outstanding
bonds during their tenure," says Halan, who is also the Lead
Analyst for LDPL.
The company will have its land bank independently valued each year to
demonstrate compliance with this covenant.
The land at Palava City that is not under any development project and
that is therefore largely unencumbered was valued -- in
a valuation report contained in the bonds' offering circular --
at about 29.0x the amount of the bonds. As such, LDPL's
land bank provides a significant buffer against possible fluctuations
in the land value, thus mitigating market risk.
The market value of the company's assets is substantially higher than
their book value, which are stated at cost price. As a result
of this high market value the ratio of secured debt to the market value
of asset -- as per the valuation report -- was low
at 14.6% at end-December 2014. Moody's
expects this ratio to decline to about 13.5% as the company
uses part of the bond proceeds to pay down some of the secured debt.
Moody's would consider notching the bonds from the CFR to reflect subordination
if the protection provided to bond holders deteriorates either because
of a decline in the market value of the company's assets or a decline
in the value of the unencumbered assets relative to the amount of unsecured
debt.
Metrics indicative of such downward rating pressure include a) secured
debt to the market value of the assets rising above 15%-20%;
or b) the value of its unencumbered assets to unsecured debt declining
below 6x.
The stable outlook reflects Moody's expectation that LDPL will substantially
achieve its sales and collection targets, execute its construction
plans without material delays, and remain prudent in its Indian
land acquisitions over the next 2-3 years.
An upgrade over the next two years is unlikely, as Moody's
expects LDPL's credit metrics will remain weakly positioned for its rating
over this period.
Upward rating pressure could emerge beyond the fiscal year ending March
2017(F2017) if the company successfully executes its projects and increases
its margins. Specifically, Moody's would consider upgrading
the ratings if LDPL (1) maintains a cash balance of above 150%
of debt maturing over the next 12 months; and (2) maintains strong
financial discipline, such that revenue/debt is above 100%
and EBTIDA/interest is above 4.0x on a sustained basis.
Downward rating pressure could emerge if (1) the company's liquidity and
operating cash flow generation deteriorate because of weak contracted
sales or aggressive land acquisitions; (2) there is a decline in
prices for its products, slower-than-expected revenue
recognition, or a fall in profit margins, negatively affecting
interest coverage and/or financial flexibility; or (3) the company
engages in material debt-funded acquisitions.
Metrics indicative of such downward rating pressure include cash and cash
equivalents falling below 100% of debt maturing over the next 12
months, and/or deteriorating credit metrics, with EBITDA/interest
stays under 3.0x beyond F2017.
The principal methodology used in these ratings was Global Homebuilding
Industry published in March 2009. Please see the Credit Policy
page on www.moodys.com for a copy of this methodology.
LDPL is the largest real estate developer in India in terms of sales of
residential apartments. For nine months ended December 2014,
the Company reported contracted sales of INR54.7 billion.
The company also has the largest land bank in the country, totaling
about 481 msf in saleable area as of September 2014.
LDPL is focused on residential development in the Mumbai Metropolitan
Region with some projects in nearby Pune. More recently,
the company along with its promoters has expanded into the London market
by acquiring two properties, now in the process of development.
LDPL is privately held by the Lodha family.
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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
Vikas Halan
VP - Senior Credit Officer
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
SUBSCRIBERS: (852) 3551-3077
Philipp L. Lotter
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077
Moody's assigns definitive Ba3 to Lodha Developers and notes
