Moody’s upgrades Macrotech Developers’ rating to B3

BENGALURU: Rating agency Moody’s Investors Service on Tuesday said it has upgraded the corporate family rating of Macrotech Developers Ltd (MDL) to ‘B3’ from ‘Caa1’.

The upgrade follows a strong recovery in the company’s operationg performance as well as reduction in debt. The outlook on the ratings is positive.

“The upgrade of MDL’s ratings to B3 from Caa1 reflects an improvement in the company’s credit profile as a result of debt reduction measures by the management, as well as a strong recovery in the company’s operating performance both at India and London following the easing of pandemic-related restrictions,” said Sweta Patodia, a Moody’s analyst.

“The positive outlook reflects our view that MDL’s credit profile could improve further once the company raises additional equity which strengthens its liquidity, as well as refinances over the next few months its USD-denominated bonds due in March 2023,” Patodia added.

Moody’s estimates that MDL’s gross consolidated borrowings, including debt at London, have reduced to around ₹188 billion as of 30 September from ₹223 billion as on 31 March. This has been driven largely by proceeds from its initial public offering in April this year as well as repayment of a loan by the promoter in June.

MDL’s operating performance also recovered strongly following the easing of pandemic-related restrictions. The company achieved operating sales of ₹20 billion for the second quarter-ended September from its India operations.

Along with the improving pace of vaccinations and improved consumer sentiment in India, the pandemic has resulted in structural changes in consumer preferences for bigger homes. Moody’s expects that these factors will keep operating sales strong over the next 12-18 months.

Moody’s estimates MDL’s operating sales will be around ₹80 billion for its Indian operations for 2021-22. Operating performance at London has also improved following UK’s re-opening, and in September, MDL achieved operating sales of GBP 110 million from its Grosvenor Square project in London.

The developer will use proceeds from sales of up to December 2021 to partially repay existing inventory finance at Grosvenor Square project. It plans to enter a new inventory finance facility to be secured against the unsold inventory at the project, which Moody’s estimates will be around GBP 450 million by December 2021.

Proceeds from this inventory facility will be used to settle outstanding dues under the current facility and refinance the outstanding bond. This will alleviate refinancing risks relating to the USD-denominated bonds maturing in March 2023.

Sales performance at its other London project, Lincoln Square, also remained buoyant with GBP 61 million of sales during April-September. With just GBP 59 million of unsold inventory, Moody’s expects the project to be fully sold within 2021-22. It also expects that the proceeds from existing sales will be used to repay the existing inventory loan of around GBP 33 million.

MDL will likely transfer the surplus proceeds to India after meeting the interest expense on the dollar bond and the loan facility at London.

In addition, Macrotech also plans to raise up to $533 million of equity over the next twelve months which will strengthen the company’s liquidity. Board approvals for raising equity are in place.

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