Moody's downgrades Lodha's ratings with negative outlook

Global ratings agency Moody's Investors Service has downgraded the ratings of Macrotech Developers, formerly known as Lodha Developers, to B3 from B2, citing liquidity issues with a negative outlook. The agency has also downgraded senior unsecured rating of the dollar-denominated bonds issued by Lodha Developers International and guaranteed by the parent to B3 from B2 with a negative outlook.

The company, which is the largest realty player in the megapolis with a number of tony projects, is owned by Mangal Prabhat Lodha, the city unit chief of the ruling BJP. "The downgrade reflects heightened liquidity risks at the company, because of the lack of sufficient progress on refinancing its upcoming debt maturities," Sweta Patodia, an analysts at Moody's, said in a note Friday.

It can be noted that in May, the agency had changed its outlook on the company to negative' from 'stable' citing liquidity concerns emanating from dip in sales. Rival Fitch Ratings had also revised downwards the outlook on the company to negative from stable in the same month citing the same set of concerns.

The agency said the company has a 250-million pound construction loan with respect to Lincoln Square, one of its projects in the British capital, maturing in December, a USD 324-million bonds maturing in March 2020, a USD 1-million buyback, and another 517 million pounds of construction loans maturing in March 2021. Moody's noted that the company could so far sell units worth 270 million pounds only from its London project and could garner only 20 percent of the sale proceeds so far.

"The company's initial plan to refinance USD 324 million of bonds through proceeds from equity stake sales from the London projects is now uncertain, while progress on commercial asset sales in the home market has also been slower than expected and may delay further," Patodia said. The agency acknowledged that its international arm has received terms of offer from one of the existing lenders for refinancing the outstanding dollar bonds, but the loan agreement is yet to be executed and remains subject to finalisation of terms and due diligence.

Even though the company has made progress on its refinancing efforts, it needs to progress further to mitigate the near-term liquidity risks, it said. The company has a domestic debt of Rs 2,670 crore which is needs to be repaid over the next one year, the report said and warned that there is a possibility of rolling over the same as it was able to do in the past.

The company can also raise additional debt by pledging its large unencumbered land bank at Palava, a distant Mumbai suburb, the agency said. The agency said its massive land bank, high quality of projects under construction and execution capability has been taken into account while arriving at the rating of B3.

"However, its credit profile is constrained by its weak liquidity position. The ratings also incorporate governance risks arising from the company's concentrated ownership structure and its aggressive financial policies," the agency added. The rating can be downgraded further if the company fails to arrange for definitive funding sources to refinance its upcoming debt maturities within the next three months to address its upcoming debt maturities, the agency said.

If the company is able to put in place a concrete refinancing plan for its upcoming maturities, the outlook can be revised to stable, the agency said. In a statement, a company spokesperson said the domestic macro environment is difficult which is being perceived by the rating agencies to have had an impact on it and claimed that there has been no "real impact" on its business..