Abhishek Lodha On Macrotech Developers’ Financials

Like its peers, troubles for Macrotech Developers Ltd., the builder of upmarket apartment towers, stem from the setbacks that the sector faced in the last few years. Prime Minister Narendra Modi’s cash ban three years ago followed by a stricter housing law (RERA) slowed sales, leaving developers saddled with debt and unsold inventory. Stress worsened after September 2018’s defaults by IL&FS dried up funding for non-bank lenders that provided bulk of the funding to real estate companies.

For Macrotech, the first caution came in August. At the time, rating agencies Moody’s Investor Service and Fitch Rating downgraded its debt deeper into the non-investment category—from B2 to B3 and B to B-, respectively—citing delay in refinancing and slower-than-expected commercial asset sales needed to repay nearly Rs 2,300 crore worth of dollar-bonds falling due by March 2020.

Moody’s followed that with another downgrade in November. The agency downgraded the corporate family ratings to Caa1 from B3, citing continued uncertainty of refinancing the company’s upcoming debt maturities, and weak liquidity position.

Also Read: Lodha Group Calls For Unconventional Policies to Fight Growth Woes

Founded by Mangal Prabhat Lodha, an elected legislator of the Bharatiya Janata Party and ranked the wealthiest property mogul in India, Macrotech rejected the concerns. Abhishek Lodha, managing director and son of the company’s founder, told BloombergQuint that he’s confident that the company would not only meet the bond payment but will also pare the debt substantially this fiscal and later, aided by cash flows from sales of residential and commercial property.

Watch the full interview of Abhishek Lodha here:

Lodha’s assertions carry some risks, say rating agencies.

Financial Picture

Macrotech Developers had a total debt of Rs 25,657 crore and Rs 2,134 crore in current financial liability as of March, according to its FY19 annual report.

According to Brickworks Ratings in August, the company’s debt-to-equity ratio stood at 7.86 times as of March. That compares with 0.59 and 0.87 times for peers like Oberoi Realty Ltd. and Godrej Properties Ltd.

Fitch said in August that Macrotech has the highest leverage among Asian developers rated ‘B’—equivalent of a non-investment grade—by the agency.

Debt Repayment
The company has Rs 4,960 crore worth of debt maturing in FY20 and Rs 9,770 crore in FY21. The non-convertible debentures don’t come up for repayment until 2022-23.

FY20

• Rs 2,300-crore dollar bonds.
• Rs 1,560 crore worth of construction finance for its Lincoln Square project in London.
• Rs 1,100 crore worth of domestic debt.

FY21

• Construction loans worth Rs 4,750 crore for 1 Grosvenor Square in London will fall due.
• Rs 5,020 crore worth of domestic debt.

Debt worth Rs 1,500 crore has already been repaid this fiscal, Lodha said without offering more detail. Of the remaining amount, some will be refinanced and cash flow will cover the rest, he added.

Revenue
So far, in April-October, Macrotech has sold apartments worth Rs 4,000 crore and Rs 1,350 crore in office properties, according to Lodha. The company expects total sales of Rs 7,000 crore in 2019-20. That’s compared with the Rs 8,529 crore in revenue it earned last fiscal. The company said it has an under-construction inventory of Rs 17,000-18,000 crore. “That’s about 30 months of supply. This is a healthy rate and well within comfort,” Macrotech said in an emailed response seeking more information.

Refinancing
It also said it has already made “100 percent arrangement for repayment/refinancing” of the Rs 2,300-crore dollar bond due for repayment this fiscal. “About $155 million has been arranged through financing against unsold inventories in our London project, while another $110 million will be infused by promoters through family offices. Another $60 million would come through surplus from recent sale of commercial property in Mumbai.”

In a November report, Moody’s acknowledged the arrangements made but cautioned that the facilities cannot be drawn down immediately due to fulfillment of certain conditions and hence liquidity risk remains elevated, the rating agency said.

Sweta Patodia, analyst at Moody’s, wrote that despite the refinancing efforts, Macrotech’s measures to date don’t completely alleviate the significant refinancing risks.

The company had repaid Rs 9,000 crore worth in FY18 and Rs 4,800 crore in FY19 when the liquidity was easier, Fitch said in a report in August.

Inventory
Macrotech, which builds homes in Mumbai, Pune and London, had 40 ongoing projects—38 in India and two in London—as of March. Its India operations are largely concentrated in the Mumbai Metropolitan Region—comprising 94 percent of its total developable area of 30.41 million square feet.

To be sure, the company has several assets, ranging from land to unsold inventory, that outweigh its debt. According to the FY19 annual report, it had inventory worth Rs 41,512 crore as of March. That included:

• Rs 4,698 crore in finished stock.
• Rs 36,650 crore worth of land and property development work in progress.
• Rs 164.61 crore of building materials.

The problem is not of insufficient assets but whether a declining economic environment will further slow sales creating a liquidity constraint for Lodha. So far, the company seems confident of meeting its debt obligations even if the rating agencies are more circumspect.