Moody's downgrade Lodha Developers rating to B2

Moody's Investor Service on Thursday downgraded Lodha Developers corporate family rating to B2 from B1 because of its company's high refinancing risk, weak liquidity position and the challenging Indian real estate environment.

Saranga Ranasinghe a Moody's Assitant Vice President and analysts said, “The downgrades reflects our expectation that the operating environment for the Indian real estate sector will continue to remain weak post the demonetisation exercise that tool place in November 2016. Weak operating conditions will continue to pressure LDPL's sales performance over the next 12-18 months.”

Ranasinghe added, “LDPL's financial profile will no longer be consistent with the previous B1 corporate family rating.”

As on March 2016, Lodha's debt stood at Rs 13300 crore, excluding the debt of London properties. Moody said, "Increase in borrowings was largely driven by an increase construction spending to Rs 3800-4000 crore in the current year as compared to Rs 2900 crore in the previous year.

With respect to London properties, Lodha has a high level of refinancing risk  given ongoing uncertainties surrounding Brexit. Following which, Lodha has planned to close development financing for one asset by April 17. With the expiry of second asset on September 17, Lodha will need to arrange for refinancing for the same.

Lodha's liquidity position  was weak with Rs 300 crore in FY16 versus Rs 2200 crore of short term debt that needs to be refinanced by December 2017. Moody's said, "However, Lodha continues to have access to project construction loans to refinance these borrowings." 

Moody's warned Lodha that the negative pressure on the rating could arise if it's operating performance and liquidity position fails to improve or it engages in any material debt-funded land acquisitions.

Lodha estimates that it has over Rs 3000 crore of undrawn credit lines and construction loans provided by relationship Indian banks.

Lodha is present across the luxury and mid-tier segments of the real estate market.