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Lodha Developers markets bond that’s key to dodging default
- The new bond from Lodha Developers will be key for it to refinance its existing $324 million note maturing 13 March
- Under the proposed bond terms, Lodha needs to set aside $118 million in cash before it can sell the new bond
India’s top builder is marketing a complex debt offering that it needs to complete successfully to avoid a default.
The new bond from Lodha Developers International Ltd. will be key for it to refinance its existing $324 million note maturing 13 March. The company also needs to meet conditions involving setting aside cash before it can tap the proceeds of the bond.
“We feel very good about the level of interest and commitments we have so far,” said Abhishek Lodha, chief executive officer of Macrotech Developers Ltd., which is the flagship company of the Lodha group. He was referring to the group’s ability to close the bond sale in a difficult market that faces the fallout of the coronavirus outbreak.
Even before the virus contagion, Indian real estate developers had been grappling with slowing demand as the country’s economic growth slumps to a decade low and a lingering credit crisis constrains spending. At least ₹10.5 trillion ($143 billion) of debt is vulnerable to default over the next three years, according to India Ratings, a local unit of Fitch.
Lodha may fend off its near-term debt maturity, but refinancing risks remain high, according to Moody’s Investors Service. Selling the new note is key because Macrotech has no alternate financing arrangements, and if the new issue were derailed or if Lodha were to fail to meet the conditions, it would likely slip into a default, Moody’s said. Some of those conditions were unmet as of Feb. 28, it said.
The proposed new note is “subject to significant execution and market risk, creating uncertainty around Macrotech’s ability to complete the bond transaction as planned,” said Sweta Patodia, an analyst at Moody’s.
Under the proposed bond terms, Lodha needs to set aside $118 million in cash before it can sell the new bond. It still needed to find about $32 million as of Feb. 28, according to Moody’s calculations.
Lodha says the deal’s structure should reassure investors. “The comfort is that we will put the money first and then the new bondholders will put their money,” said Abhishek Lodha. “That’s as strong a comfort as one can give.”
Lodha’s 12% notes maturing next week were indicated at a discount of about 10% of face value on Wednesday, according to two Hong Kong-based traders, who asked not to be identified as they are not authorized to speak to the media.
Moody’s rates Lodha’s proposed bond Caa1, seven steps below investment grade, with a negative outlook. It cited the market risk, and uncertainty about Macrotech’s refinancing plans over the next 12 months in the face of about $1 billion in debt maturing through March 2021.
Abhishek Lodha said the group has a strong track record in paying down its debt, citing positive cash flows over the last two quarters, which helped it pay back $355 million at Macrotech over the period.
Lodha group is the country’s largest residential real estate developer with sales of about 119 billion rupees in the twelve months ended March last year, according to a Grohe Hurun report.
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First Published:4 Mar 2020, 08:02 PM IST
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