Rating agency Fitch Ratings has placed lodha Developers Private limited’s ‘B’ long-Term Issuer Default Rating (IDR) and the ‘B’ long-term rating on its outstanding $200 million 12 per cent unsecured unsubordinated notes due 2020 on Rating Watch Negative (RWN), following the company’s announcement that it is seeking the consent of the holders of its US dollar notes to amend certain covenants in indenture and to waive a breach of covenants.
“The RWN will be resolved following a review of the outcome of the consent solicitation,” said the report.
Fitch noted that the company has until 9 August 2017 to obtain bondholder consent. In the event that this is unsuccessful, the US dollar bonds may need to be redeemed should the bondholders holding at least 25 per cent 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.
The US dollar notes are issued by lodha’s wholly owned subsidiary, lodha Developers International limited, and guaranteed by lodha and certain subsidiaries.
lodha is seeking the consent from bondholders of its USD200 million unsecured unsubordinated bonds to waive the breach of the restricted payments covenant. As of 30 June 2017, lodha and certain restricted subsidiaries advanced loans and provided shortfall guarantees to its 40 per cent-owned joint-venture in london - which is not part of the original restricted group, in excess of the consolidated net income basket limit allowed under the bond indenture. Concurrent with the consent solicitation process, lodha is seeking consent to reorganize, such that the london properties become part of the restricted group as lodha increases its stake in the london properties to at least 75 per cent.
Fitch estimates that lodha’s consolidated leverage would drop to 72 per cent if the london business were amalgamated, from 80 per cent previously. At 31 March 2017, the london business had external debt of Rs 26.4 billion and adjusted inventory of Rs 60.7 billion, which amounts to a leverage ratio (defined as net debt/adjusted inventory) of 43 per cent. Our leverage ratios exclude london business’ outstanding loans payable to lodha. As such, there would be no immediate rating impact on the IDR should lodha receive the necessary consents.