Singapore, January 26, 2017 -- Moody's Investors Service, ("Moody's") has downgraded the corporate
family rating of Lodha Developers Private Limited (LDPL) to B2 from B1.
Moody's has also downgraded the senior unsecured debt rating of the US
dollar denominated bonds issued by Lodha Developers International Limited
and guaranteed by LDPL to B2 from B1.
The outlook on the ratings is negative.
RATINGS RATIONALE
"The downgrade reflects our expectation that the operating environment
for the Indian real estate sector will continue to remain weak post the
demonetization exercise that took place in November 2016. Weak
operating conditions will continue to pressure LDPL's sales performance
over the next 12-18 months," says Saranga Ranasinghe,
a Moody's Assistant Vice President and Analyst, adding,
"As a result, LDPL's financial profile will no longer
be consistent with the previous B1 corporate family rating."
Sales volumes in the Indian residential market decreased by more than
40% in 4Q2016 compared to the same period in 2015. As such,
we expect LDPL's operating sales to be 15-20% lower
than Moody's previous expectations of around INR70 billion for the
financial year ending March 2017 (fiscal 2017).
Reductions in home loan interest rates or any possible measures from the
Union Budget on 1st February 2017 will not lead to any near-term
material improvement at the high-end of the real estate market,
as any such measures are more likely to be aimed at mid and low income
earners. LDPL is represented across the luxury and mid-tier
segments of the market.
Operating sales over the next 12-18 months will remain at levels
that will be substantially lower than those that would allow LDPL to generate
excess cash flow to pay down debt. LDPL's debt has continued
to increase and stood at INR133 billion (excluding pro rata debt for the
London properties) at the end of fiscal 2016. Increase in borrowings
was largely driven by an increase construction spending to INR 38-40
billion in the current year as compared to INR 29 billion in the previous
year.
Given this, LDPL's key credit metrics will remain weak,
with revenue/ adjusted debt at around 35%-45% for
fiscal 2017, positioning it more appropriately at the B2 rating
level.
Similarly, homebuilding EBITDA/interest will remain weakly positioned
at less than 2.0x.
LDPL has a high level of refinancing risk in regard to its London properties,
particularly given ongoing uncertainties surrounding Brexit. In
this regard, the company expects to close development financing
for one asset by April 17. The second asset has a facility expiring
September 17 and the company will need to arrange for refinancing for
the same.
In addition, LDPL has a weak liquidity position with INR 3 billion
of cash at the end of fiscal 2016 against INR22 billion of short term
debt that needs to be refinanced during the 12 months ending December
2017. The company, however, continues to have access
to project construction loans to refinance these borrowings. The
company estimates that it has over INR 30 billion of undrawn credit lines
and construction loans provided by relationship Indian banks.
The negative outlook reflects the high refinancing risk, weak liquidity
position and the challenging operating environment for real estate companies
in India.
An upgrade in the ratings is unlikely, given the negative outlook.
The outlook could return to stable if the company is able to refinance
the short term debt maturities in London with longer term construction
debt facilities. At the same time, a stable outlook would
require improvement in company's credit metrics such that revenue/debt
improves to above 55% and homebuilding EBIT/Interest exceeds 2.0x
on a sustained basis.
Further negative pressure on the rating could arise if the company's
operating performance and liquidity position fails to improve or it engages
in any material debt-funded land acquisitions.
Credit metrics indicative of such downward pressure include a) revenue/debt
staying below 50%; and/or b) homebuilding EBIT/interest falling
below 1.5x.
The principal methodology used in these ratings was Homebuilding And Property
Development Industry published in April 2015. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Lodha Developers Private Limited is the largest real estate developer
in India in terms of sales of residential apartments. For fiscal
year ended 31 March 2016, the Company reported contracted sales
of INR64.3 billion. 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 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
SUBSCRIBERS: (852) 3551-3077
Laura Acres
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
