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Rating Agencies Flag Off Potential Downgrade For Lodha Developers’ $200 Million Bond

Lodha’s $200 million bond carries a 12 percent coupon and is due in 2020.



Cranes rise above the construction site of Lodha The Park, a luxury residential project developed by Lodha Developers Ltd., in Mumbai. Photographer: Dhiraj Singh/Bloomberg 
Cranes rise above the construction site of Lodha The Park, a luxury residential project developed by Lodha Developers Ltd., in Mumbai. Photographer: Dhiraj Singh/Bloomberg 

Ratings agencies Moody's Investor Service and Fitch Ratings have placed Lodha Developers’ $200 million unsecured notes due in 2020 under review for a downgrade as the real estate developer sought bondholders’ consent to waive a breach of restricted payment covenant on such bonds.

Fitch Ratings has placed Lodha's rating on the negative rating watch, which suggests a heightened probability of a downgrade, it said in a media statement on Friday. On Thursday, Moody's Investor Services had placed Lodha on review for a downgrade.

The move was triggered after Lodha sought bondholders’ consent to waive the breach of a restricted payment covenant. In loan agreements, a restricted payments covenant limits the ability of the borrower to make payments of dividend and distributions to equity holders. This is to ensure that the loan is repaid before equity holders are paid.

In June, Lodha and along with certain subsidiaries had made restricted payments in the form of loans to its 40 percent-owned joint venture in London, which is not part of the original restricted group. This was a breach of the restricted payments covenant. Lodha is also seeking consent to reorganise the bonds in such a way that the London properties become a part of the restricted group.

The $200 million bond, which has a coupon rate of 12 percent and is issued through Lodha's subsidiary, has a rating of 'B' and 'B2' from Fitch and Moody's respectively. Credit ratings in the 'B' scale mean that the borrower has the capacity to meet its obligations, but any adverse business or financial conditions could likely impair that.

Fitch said that Lodha has until August 9 to get bondholders' consent. "In the event that this is unsuccessful, the U.S. dollar bonds may need to be redeemed should the bondholders holding at least 25 percent of the face value of outstanding bonds exercise the right of acceleration and the company is not able to rectify or refinance the bonds within 30 days.", said the media statement.

Both Moody's and Fitch added that if bondholders reject the proposal then it could result in a downgrade by "more than one notch".

Lodha, according to Moody's, is India's largest residential developer in India in terms of sales. It had reported contracted sales of around Rs 6,430 crore for the year ended March 2016.