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Rating Action:

Moody's upgrades Macrotech to B3; outlook positive

02 Nov 2021

Singapore, November 02, 2021 -- Moody's Investors Service has upgraded to B3 from Caa1 the corporate family rating (CFR) of Macrotech Developers Limited (MDL) and the backed senior secured rating of Lodha Developers International Limited's USD bonds that are guaranteed by MDL.

The outlook on the ratings is positive.

"The upgrade of MDL's ratings to B3 from Caa1 reflects an improvement in the company's credit profile as a result of debt reduction measures by the management, as well as a strong recovery in the company's operating performance both at India and London following the easing of pandemic-related restrictions," says Sweta Patodia, a Moody's Analyst.

"The positive outlook reflects our view that MDL's credit profile could improve further once the company raises additional equity which strengthens its liquidity, as well as refinances over the next few months its USD-denominated bonds due in March 2023," adds Patodia.

RATINGS RATIONALE

Moody's estimates that MDL's gross consolidated borrowings, including debt at London, have reduced to around INR188 billion as of 30 September 2021 from INR223 billion as of 31 March 2021. This has been driven largely by proceeds from an initial public offering (IPO) completed in April 2021 and repayment of a loan by the promoter in June 2021.

At the same time, MDL's operating performance has recovered strongly following the easing of pandemic-related restrictions. The company achieved operating sales of INR20 billion for the second quarter ended 30 September 2021 (2Q FY2022), at its Indian operations, compared with INR10 billion in the immediately preceding quarter.

The recovery in operating sales was despite the second quarter being seasonally weak because of the monsoon season in India, when construction activity slows down.

The improving pace of vaccinations and a ramp-up in economic activity have improved consumer sentiment in India. At the same time, the pandemic has resulted in structural changes in consumer preferences for bigger homes. Moody's expects that these factors, combined, will keep operating sales strong over the next 12-18 months.

Moody's estimates MDL's operating sales will be around INR80 billion at its Indian operations for the fiscal year ending 31 March 2022 (FY2022).

Operating performance at London has also improved following UK's re-opening. In September 2021, MDL achieved operating sales of GBP110 million at Grosvenor Square (GSQ), one of its projects in London.

Moody's expects that sales momentum at GSQ will remain buoyant given the gradual resumption in international travel and re-opening of UK's borders for international tourists.

MDL will use proceeds from sales of up to December 2021 to partially repay the existing inventory finance at GSQ. The company plans to enter a new inventory finance facility to be secured against the unsold inventory at the project, which Moody's estimates will be around GBP450 million by December 2021.

Proceeds from this inventory facility will be used to settle outstanding dues under the current facility and refinance the outstanding bond. This will alleviate refinancing risks relating to the USD-denominated bonds maturing in March 2023.

Sales performance at Lincoln Square also remains buoyant with GBP61 million of sales in the first half (1H) of fiscal 2022. With just GBP59 million of unsold inventory, Moody's expects the project to be fully sold within fiscal 2022.

Moody's also expects that proceeds from existing sales will be used to repay the existing inventory loan of around GBP33 million. MDL will likely transfer the surplus proceeds to India after meeting the interest expense on the USD bond and the loan facility at London.

In addition, the company plans to raise up to INR40 billion ($533 million) of equity over the next twelve months which will strengthen the company's liquidity. Board approvals for raising equity are in place.

In terms of environmental, social and governance (ESG) factors, MDL is exposed to the effects of the pandemic on the operating environment in India. Moody's considers this to be 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 88.5% of the company. 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 and slow down the likely deleveraging.

However, Moody's expects the risk around concentrated ownership to moderate as the company is planning to raise further equity over the next twelve months.

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

Moody's could upgrade the ratings if 1) the company successfully executes its planned equity offering which improves its liquidity profile and; 2) refinances its USD bond, such that the company does not have significant debt maturities over and above its cash resources, either at India or London, over the next 12-18 months.

Moody's could also revise the outlook to stable if MDL's liquidity profile fails to improve as expected and its debt maturities over the next 12-18 months remain at elevated levels.

A sharp decline in MDL's operating performance that reduces the company's earnings and cash flows and slows the expected pace of deleveraging, could also constrain its rating.

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 to 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 88.5% 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.

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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

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 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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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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