Macrotech’s Refinancing Risks To Persist Even If It Avoids Default: Moody’s

While Macrotech Developers Ltd.'s fundraising plan to avoid a default faces an execution risk, Moody's Investors Service said the real estate company's problems won't abate even if the immediate proposal succeeds.

“The proposed bond transaction is subject to significant execution and market risk, including the fulfillment of condition precedent, creating uncertainty around MDL's ability to complete the bond transaction as planned,” Sweta Patodia, an analyst at Moody's, said in a report. If the bond goes ahead as planned, significant debt maturities and unfavourable industry conditions will keep refinancing risk high and liquidity weak, she wrote.

Macrotech Developers needs to repay $343 million in principal and interest on its U.S. dollar bond maturing March 13. Of this, Lodha Developers International Ltd., a wholly owned subsidiary of Macrotech, has proposed to raise $225 million by issuing senior secured notes due 2023. The remaining $118 million will come from a combination of proceeds from an inventory financing facility ($34 million), transfer of funds from Indian operations ($29 million) and collections from existing sales ($55 million).

The developer's ability to promptly collect proceeds from existing sales also remains subject to market conditions, Moody's said. Any delays in receiving such proceeds will prevent the bond transaction from progressing, increasing the likelihood of default, it said, adding that Macrotech doesn't have alternative financing arrangements in place to repay the bond.

A successful issuance will ease near-term liquidity risk but refinancing risk will remain significant with around an additional $1 billion of debt maturing by March 2021 amid an overall weak operating environment, Patodia wrote.

Abhishek Lodha, managing director and chief executive officer at Macrotech, said in a statement earlier, “We raised GBP 86 million (Rs 800 crore) in the U.K. With these proceeds and additional cash flows from our U.K. and India businesses, we look forward to fully repaying our 2020 USD bonds in March 2020.”

Also Read: Abhishek Lodha On Macrotech Developers' Financials

According to Moody's, the subdued market conditions will likely continue to constraint the company's earnings over the next 12 months. Tepid consumer confidence, slowing economic growth and tight liquidity have hurt real estate demand in the Mumbai Metropolitan Region, the company's key operating market, the ratings agency said. “Project launches have consequently continued to exceed sales, leading to inventory build-up and price corrections.”

Moody's sees limited upside for the rating over the next 12-18 months. “In addition to significant refinancing risk, weak financial management as reflected by an inability to execute refinancing plans on a timely basis will continue to weigh on credit quality.”