Moody's says additional investment by Lodha would generate funds for bond maturity

Ratings agency Moody's Friday said additional stake divestment by city-based Lodha Developers in its London development arm is expected to reduce leverage and generate funds to address the March 2020 bond maturity. The agency noted that the realty firm's Lodha sale of 28 per cent of equity in Lodha Developers UK allows the developer to monetise its stake in the two London properties currently under development and may also pave the way for further stake reductions by LDL.

Lodha Developers UK holds (LDUKL) two properties, 48 Carey Street and 1 Grosvenor Square, which it is building in London. "Further divestment of stakes in the UK arm would generate sufficient funds to address Lodha's March 2020 bonds maturity," Moody's said.

According to the agency, the London projects have around GBP 650 million (nearly Rs 6,000 crore) of surplus after repaying all loans at the two projects. "Even with a 10-15 per cent haircut in gross development value at both the projects, the firm should have surplus funds of around GBP 430-500 million on completion of these projects. As part of further divestment of the London properties, we expect it will repay the shareholder loan given by Lodha to LDUKL of USD 480 million, which will be sufficient to address the outstanding USD 260 million bonds due March 2020," it said.

Following the stake sale, Lodha Developers stake in the London properties would now stand at 47 per cent. The agency expects that Lodha will no longer consolidate the London properties in its financial statements.

"We expect the London properties to account for around 29 per cent of Lodha's total consolidated debt. De-consolidation of the London assets will be positive and reduce its leverage in fiscal 2019 to around 3.7 times, versus our current expectation of 4.3-4.5 times," it said.

However, the rating agency will continue to incorporate the London debt in Lodha's credit profile unless a complete divestment takes place, given that it expects the company may need to provide support to those projects. The agency further said that if a majority stake in the UK arm is sold to a third party, the repayment obligation of these loans will be with the acquirer of these assets.

"LDUKL has a loan of around GBP 290 million maturing in August 2019 and another GBP 517 million loan maturing in March 2021. The refinancing risk of the two facilities is partially mitigated by the sales already made at the two projects," it said.

(With inputs from agencies.)