By Anita Nayak

India Ratings and Research (Ind-Ra) has downgraded ratings of Macrotech Developers Limited’s (MDL) debt instruments to ‘IND BB’ from ‘IND BBB-’ and maintained ratings on Rating Watch Negative (RWN) as follows: 

Instrument Type

ISIN

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (billion)

Rating/Rating Watch

Rating Action

Bank loans

-

-

-

-

INR1.50

IND BB/RWN

Downgraded; maintained on RWN

Non-convertible debentures (NCDs)

INE014S07012

13 July 2017

9.5%

13 July 2023

INR4.95

IND BB/RWN

Downgraded; maintained on RWN

Analytical Approach: Ind-Ra has taken a consolidated view of MDL and all of its subsidiaries and special purpose vehicles under MDL while arriving at the ratings as all the companies operate in the same line of business.

The rating action reflects slower-than-expected progress on MDL’s refinancing initiatives for its upcoming US dollar-denominated bond maturing in March 2020 and timely refinancing of domestic term debt. Timely creation of liquidity backup for the upcoming debt maturities in 2HFY20 and FY21 amid the funding challenges being faced by the sector remains the key rating monitorable. The rating action also factors in weaker-than-expected operating performance in domestic residential market during April-October 2019.

 

KEY RATING DRIVERS

Liquidity Indicator – Stretched; Elevated Refinancing Risk for Debt Maturities in 2HFY20 and FY21: MDL’s outstanding debt reduced to INR248.5 billion as on 31 October 2019 from INR256.4 billion in FYE19, led by repayment of construction finance debt from Lincoln Square (48CS) project. Out of the outstanding debt, INR49.4 billion is due for repayment from November 2019 to March 2020, which includes construction finance debt of INR15.6 billion (GBP170 million due in December 2019) on its 48 CS project, dollar-denominated bonds of INR23 billion (USD324 million) due in March 2020 and domestic debt of INR11 billion due for repayment from November 2019 to March 2020. Additionally, MDL has another INR97.5 billion of debt for repayment in FY21, which includes INR47.5 billion (GBP517 million; currently GBP470 million is drawn down) at 1 Grosvenor Square (1GSQ) project and INR50.2 billion of domestic repayment.

Construction Finance Debt at 48CS Project due in December 2019: As on 31 October 2019, 48CS had achieved cumulative sales of INR27.9 billion (GBP310 million) and the collections were used to repay construction finance debt of INR11 billion (GBP120 million) and will remain sufficient to repay pending debt of INR15.6 billion (GBP170 million). The company has received practical completion certificate for 75% of its units, as at end of 31 October 2019. As confirmed by the management, the company is expected to receive practical completion certificate for remaining units by mid-December.

Upcoming Domestic Debt Repayment: As on 31 October 2019, domestic debt repayment stood at INR11 billion (November 2019 –March 2020) against which the company has an undrawn credit line of INR8.3 billion. Furthermore, MDL has another INR50 billion of domestic repayment in FY21. Though the final timelines for the receipt of the funds are still not certain, management-confirmed avenues of funding are:

- MDL is in the process of monetising its 0.6 million sq. ft. of leasable area at New Cuffe Parade commercial project for INR10.5 billion. The final sale agreement is likely to be concluded shortly. Proceeds from sale would be first used to retire debt against the property of INR6.5 billion and pending INR4 billion would be utilised for debt repayment.
- The company is negotiating a long-term funding of INR20 billion with an existing private-equity lender. The final agreement is likely to be executed by 4QFY20, which will help to refinance some debt maturing in FY20 and FY21.

MDL has given away certain portion of its land parcels for infrastructure projects, for which it is likely to receive INR2.8 billion in 4QFY20 and another INR1 billion in FY21.

1 GSQ construction finance repayment in FY21: As on 31 October 2019, 1 GSQ achieved cumulative sales of INR23.5 billion (GBP263 million) which will be first be utilised for repayment of construction finance debt of INR47.5 billion (GBP517 million, out of which INRGBP470 million is drawn down) due for repayment in March 2021. Any further sales in the project will be utilised for repayment of construction finance debt as they have first charge over project inventory. As confirmed by the management, the deliveries for 1 GSQ project are expected to commence from January 2020, and the residual inventory value, as on 31 October 2019, is INR 67.6 billion (GBP 735 million). Pick-up in sales to make timely debt repayment in March 2021 will remain a key monitorable over near-medium term.

Uncertainty over Repayment of Dollar Bonds in March 2020: MDL has a bullet repayment of INR23billion (USD324 million) due in March 2020.  It has an executed loan agreement against unsold inventory of INR11 billion (GBP120 million/ USD150 million) at 48CS project. However, the drawdown is subject to receiving the practical completion for pending 25% of the units, which, the management expects, will be completed by December 2019. This secures only partial dollar-denominated bond repayment.

Furthermore, the company is in negotiation to secure another INR13.8 billion (GBP150 million/ USD188 million) of inventory funding in its 1GSQ project. Documentation of this facility is currently in progress and is likely to be finalised over the next few months.

These two facilities remain primary funding sources; however, the drawdown of these loans are associated with fulfilment of certain conditions and timely completion of documentation procedure, thus resulting in elevated refinancing/ repayment risk over near term for part repayment.

Last Resort Funding: MDL has secured INR7.2 billion (US$100 million) of credit line from related parties, which is secured against its pledged shares that will be utilised for repayment of dollar-denominated bonds. This is a last resort funding measure to cover-up for any funding shortfalls; however, the information on the credit strength of the related party is not sufficient to ascertain its ability to extend support.

Continued Weak Operating Performance across Residential Projects: From April-October 2019, MDL recorded sales of INR40.5 billion in its domestic projects with collections of INR41.5 billion. Of the total unsold inventory, around INR85 billion inventory has received occupancy certificate. This inventory is an equal mix of luxury, mid-segment and affordable projects. Although the company's focus is to push sales to improve performance, the management has revised its FY20 sales and collections estimates to INR80 billion and INR85 billion, respectively (lower by 11% and 15%) citing slowdown in market and lower-than-expected performance in 1HFY20.

MDL’s London project recorded sales of INR9.9 billion (GBP108 million) across both 48CS and 1GSQ projects, which is significantly lower than the management’s expectations. Collection for 48CS project have begun and proceeds are being utilised for repayment of construction finance loan and collections from 1GSQ project will begin on completion of construction, which is likely to happen in FY21.


RATING SENSITIVITIES

The RWN indicates that the rating could be downgraded or affirmed depending on:

-Receipt of practical completion certificate for 48CS project, which will impact drawdown of inventory funding and/or finalisation of definitive funding tie-up against 1GSQ project for repayment of dollar-denominated bonds in March 2020 and/or,
No meaningful improvement in operating performance in 2HFY20 and/or,
Inability to create liquidity backups for London and domestic debt maturities in 2HFY20 and FY21.

COMPANY PROFILE

Established in 1980, Mumbai-based MDL is one of the largest real estate developers in the Mumbai Metropolitan Region in terms of presales and development pipeline. The company focuses on residential and commercial segments across price points.

The company reported revenue of INR119.1 billion in FY19 (FY18: INR96.7 billion) led by higher collections from sales. Consequently, EBITDA margin improved to 26.8% in FY19 (FY18: 17.3%).

 

FINANCIAL SUMMARY 

Particulars

FY19

FY18

FY17

Presales (INR billion)

79.9

101.1

69.2

Collections (INR billion)

92.1

80.6

76.7

Revenue (INR billion)

119. 1

96. 7

77. 5

EBITDA (INR billion)

31. 9

16.7

15.9

EBITDA margin (%)

26.8

17.4

20.6

EBITDAR (INR billion)

31.9

16. 9

16.1

EBITDAR margin (%)

26.8

17.5

20.8

Interest coverage (x)

5.77

4.38

3.33

Gross debt (INR billion)

256.4

226. 2

193. 6

Cash & equivalents (INR billion)

4.3

3.3

2.1

Net debt (INR billion)

252.0

222.8

191.4

Adjusted inventory (INR billion)

311.1

294.6

262.6

Presales/gross debt (x)

0.3

0.4

0.4

Presales/net debt (x)

0.4

0.4

0.4

Presales/adjusted inventory (x)

0.3

0.3

0.3

Gross debt/adjusted inventory (%)

82

77

74

Net debt/adjusted inventory (%)

81

76

73

Source: MDL, Ind-Ra


RATING HISTORY

Instrument Type

Current Rating/Rating Watch

Historical Rating/Outlook/Rating Watch

Rating Type

Rated Limits (billion)

Rating

23 August

2019

26 July 2018

30 December 2016

Bank Loans

Long-term

INR1.50

IND BB/ RWN

IND BBB-/RWN

IND BBB+/Positive

IND BBB+/Negative

NCDs

Long-term

INR4.95

IND BB/ RWN

IND BBB-/RWN

-

-


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

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About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Anita Nayak

    Senior Analyst
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th Floor, West Wing, Bandra Kurla Complex, Bandra East,Mumbai - 400051
    +91 22 40001758

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121