Mumbai: Fitch Ratings has revised its rating outlook for real estate firm Lodha Developers Ltd to negative from stable, following weak liquidity position and concern that the company’s cash flows will be insufficient to repay its ₹69 billion debt, due in March 2020.
The rating agency has also affirmed the $325 million, 12% senior unsecured bond due in 2020, issued by Lodha Developers International Limited and guaranteed by Lodha and certain subsidiaries, at 'B' with a Recovery Rating of RR4.
“We expect repayments on the ₹26 billion construction-finance loan at London-based subsidiary, Lodha Developers 48CS Ltd, due December 2020, to be covered through project sales and Indian debt maturities of ₹20billion to be refinanced in light of Lodha's large inventory and land bank," Fitch said in a press release. However, addressing the remaining maturities would require alternate funding sources like asset sales and inventory financing, the ratings agency said.
Fitch pointed out that the Mumbai-based developer received a GBP25 million advance for the planned 28% stake sale in its London projects and that further sales would alleviate liquidity risk. Fitch has warned that failure to execute its refinancing plan may result in the rating being downgraded by one or more notches.
“Lodha is one of the highest leveraged companies among 'B' category property-developer peers in Asia Pacific," Fitch said. According to the rating agency, Lodha’s domestic pre sales are likely to grow 7% annually over FY19-22, supported by demand growth in the affordable segment in light of a substantial housing deficit and government initiatives. However, collections are likely to moderate on weak pre domestic sales in FY 2019.
“We believe the lower sales were driven by a weaker-than-Fitch-expected demand environment, tighter housing-finance credit availability and the near-term effect of a lower goods and services tax on under-construction properties from FY20," it said.
The rating agency also expects Lodha’s London project to generate a pre-sales of ₹8 billion in financial year 2019-2020 (compared with ₹6 billion and ₹24 billion in FY19 and FY18, respectively) on continued uncertainty due the UK's exit from the EU. However, pre-sales are likely to improve to ₹12 billion once the Brexit outcome is known and the two projects are completed, it added.
In November 2018, Lodha announced that it would wind up its UK business through sale of its equity interest in its two projects in London for around ₹4,200 crore. The company’s announcement to sell its London property came after its plan to shelve its initial public offering (IPO) last year.
The developer, which is considered to be the largest in terms of home sales, filed for an IPO earlier this year to raise around ₹5,000 crore, making it the biggest real estate public float since DLF’s ₹9,187 crore IPO in 2009. The company had said that it would use around ₹4,500 crore from the proceeds of the IPO to repay debt.