Fitch Ratings has downgraded the ratings of Mumbai-based home-builder Lodha Developers Private Ltd’s long-term issuer default rating, citing the firm’s inability to reduce leverage.
Last month, Moody’s Investors Services had downgraded the ratings of the firm, citing weaker than expected operating performance.
Fitch has downgraded the Long-Term Issuer Default Rating (LT IDR) to 'B' from 'B+' and said the outlook is negative.
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 per cent — if presales and cash collections continue to underperform expectations, or if there are significant cash calls from its 40 per cent-owned London joint venture, it said.
The firm also said it expects demand for residential properties in India to remain modest, due to the significant unsold inventory across most domestic regional markets.
The agency has also downgraded the long-term rating on Lodha's $200 million senior unsecured notes to ‘B’ from ‘B+’. The notes are issued by Lodha Developers International Ltd and guaranteed by Lodha and some of its units.
Fitch said Lodha’s leverage, measured by net debt/adjusted inventory, increased to 80 per cent by December 2015 from 76 per cent in FY15 and 65 per cent in FY14. This is because the company continued to ramp up the pace of construction in its property projects, despite lower-than-expected presales and cash collections over the last 12-18 months.
The ratings firm also said Lodha pre-sold Rs. 6400 crore worth of properties in FY16, sharply below its estimates of Rs. 11000 crore, which resulted in weaker than expected cash collections of Rs. 6200 crore. However cash collections in FY16 were 15% higher than in FY15 because the construction progress of sections of major projects that were presold in prior years were mostly on track, it said.
Fitch expects Lodha to pre-sell only around Rs. 6000-6500 crore of property in FY17.
