Global rating agency Fitch Ratings has downgraded the long-term issuer default rating of Lodha Developers to ‘B’ from ‘B+’ with a ‘negative’ outlook. Fitch Ratings attributed the downgrade to the company’s inability to reduce its leverage to a level appropriate for its previous rating.
The agency has also downgraded the long-term rating on Lodha’s $200 million senior unsecured notes due in 2020 to ‘B’ from ‘B+’. These US dollar notes are issued by Lodha Developers International and guaranteed by Lodha and some of its subsidiaries.
According to Fitch, the negative outlook reflects the heightened liquidity risk that Lodha may face in the short-term together with the risk that leverage will continue to remain high at above 80% if presales and cash collections continue to underperform.
“Leverage had increased to 80% by December 31, 2015 from 76% at March 31, 2015 (FYE15) and 65% at FYE14, as the company continued to ramp up the pace of construction in its property projects in spite of lower-than-expected presales and cash collections over the last 12-18 months,” the rating agency said in a release.
According to Capitaline data, at the end of March 2015 the firm’s total debt stood at R6,996 crore. In FY15, net profit of Lodha Developers stood at R28.3 crore led by a revenue of R824.7 crore. The firm had an interest outgo of R11.3 crore.
Fitch Ratings also said it doesn’t expect Lodha to be able to deleverage significantly over the next 12 months using its internally generated cash flow.
“The company has continued to lend money to its London joint-venture, which is in the very early stages of development and has a high project-debt burden. A substantial amount of the London project debt falls due in the next six months, mostly in December 2016,” the agency said.
As per the release, Lodha Developers sold around $970 million worth of properties across more than 20 projects in FY16 — with a land bank of over 25 million sq metre — valued at over $10 billion. Further, cash flows and sales of Lodha Developers are concentrated on four large project locations, each housing several high-rise towers or housing schemes. These locations are likely to account for more than 70% of sales and cash collections over the next three years.
