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Bengaluru: Moody's Investors Service has affirmed Macrotech Developers Ltd’s (MDL), which operates under the brand ‘Lodha’,Caa1 corporate family rating (CFR) and the Caa1 backed senior secured rating of Lodha Developers International Ltd’s US dollar bonds guaranteed by MDL.

It also changed the outlook on the ratings to positive from stable.

The rating action follows the completion of MDL's initial public offering (IPO) and listing on the stock exchange on 19 April.

"The affirmation of MDL's Caa1 ratings and change in outlook to positive reflects our view that proceeds fromthe recently concluded IPO and other management initiatives can eventually improve MDL's liquidity, whichcould then support a higher rating despite pandemic-related operating challenges," said Sweta Patodia, a Moody's analyst.

"Successful completion of the IPO has broadened the funding base for the company. The IPO and conclusion ofthe inventory financing at Grosvenor Square, one of the company's projects in London, in November 2020, also demonstrate MDL's improved financial management," Patodia added.

MDL raised around $333 million in its recent equity offering, of which almost 80% of the proceeds will be applied towards debt reduction. The management is currently in the process of identifying specific tranches of debt that will be repaid from the IPO proceeds.

MDL expects to receive around $200 million by way of repayment of loans made to the promoter in the next 3-6 months. The company expects to receive another $150-$250 million as proceeds from land sales and monetization of commercial assets by March 2022.

The management intends to use most of these proceeds towards debt reduction. As of 31 March 2021, MDL had around $800 million of debt maturities at its India operations over the next 24 months.

MDL's liquidity could improve significantly following the completion of these transactions even if its operating performance were to weaken, Moody’s said.

The Mumbai-based developer also has around GBP 45 million ($60 million) of debt maturing at Lincoln Square, one of its projects in London, by March 2022. The company intends to service this debt out of fresh sales in the project. As of 31 March 2021, it had GBP 121 million of unsold inventory at the project.

Remote working, low interest rates and government tax incentives will keep housing demand in India buoyant overthe next 12-18 months. This trend bodes well for real-estate developers such as MDL.

“A virus resurgence in India, especially in MDL's main operating market Maharashtra, has led to fresh lockdowns in the region. This could affect the company's operating sales and collections over the next few months. MDL's operating performance in London also continues to be subdued because of pandemic-related disruptions," the Moody’s note said.

In terms of governance risk, Moody's expects MDL to remain exposed to risks from concentrated ownership as the promoter group continues to hold 88% of the company after the IPO. 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, which remain exposed to the deteriorating operating environment in India, the ratings agency said.

Moody's said it can upgrade the ratings if MDL successfully executes its ongoing fund-raising initiatives and uses the proceeds to address its debt maturities, both in India and London, over the next 12-24 months.

However, a sharp decline in MDL's operating performance, which may result from a prolonged economic lockdown in India, could constrain its rating.

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