Weak liquidity prompts Fitch to put Lodha Developers’ unsecured debt on rating watch

New Delhi, Aug 16 : Fitch Ratings said it has downgraded real estate developer Macrotech Developers’ (earlier known as Lodha Developers) unsecured debt to ‘B-‘ from ‘B’. It also downgraded the rating on the company’s $325 million 12 percent senior unsecured bond due March 2020, which was issued by Lodha Developers International and guaranteed by Macrotech Developers (MDL) and certain subsidiaries, to ‘B-‘ with a recovery rating of ‘RR4’ from ‘B’/’RR4’.
Fitch said it has simultaneously placed all ratings on rating watch negative (RWN) “due to the company’s weak liquidity management.”
MDL has relied on funding from domestic non-bank financial institutions (NBFI), including housing finance companies, which are now shying away from lending to the property sector, the rating agency said, adding that the company’s refinancing options have therefore narrowed as the onshore funding squeeze is coinciding with the maturity of its $325 million bond.
Fitch said change in the domestic funding environment will present the company with significant challenges in meeting its debt maturities of Rs 1,600 crore in FY20 and Rs 5,000 crore in FY21. It acknowledged its previous debt repayments of Rs 9,000 crore in FY18 and Rs 4,800 crore in FY19 when the liquidity situation was a lot easier.
The risks, it said, are mitigated by the appetite of some domestic banks and alternative financing providers such as private equity (PE) funds that continue to lend to the company due to its strong market position, good quality projects and large unencumbered land bank.
The RWN reflects near-term risk that MDL’s ratings could be downgraded by more than one notch if the company is unable to refinance, or repay, the $325 million bond due March 2020.
MDL said it is in advanced stages of negotiations to secure sufficient funds to repay the bond. Fitch said that if the company is able to complete the refinancing, it would consider removing the RWN.