Macrotech Developers Ltd's (MDL's) proposed bond will alleviate immediate refinancing needs, but that even if the bond goes ahead as planned, significant debt maturities and unfavourable industry conditions will keep refinancing risk high and liquidity weak, Moody's Investors Service said on Wednesday.
"The proposed bond transaction is subject to significant execution and market risk, including the fulfillment of condition precedent, creating uncertainty around MDL's ability to complete the bond transaction as planned," said Moody's Analyst Sweta Patodia in a new report.
MDL needs 343 million dollars to repay principal and interest on its US dollar bond maturing on March 13 and for 118 million dollars of that amount relies on proceeds from an inventory financing facility, the transfer of funds from its Indian operations and collections from existing sales.
The latter in particular also remains subject to market conditions.
Any delays in receiving such proceeds will prevent the bond transaction from progressing, increasing the likelihood of default. MDL does not have alternate financing arrangements in place to repay the maturing bond.
"Nevertheless, if MDL is successful in the issuance, near-term liquidity risk will ease but refinancing risk will remain significant with around an additional one billion dollars of debt maturing by March 2021 amid an overall weak operating environment," added Patodia.
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Tepid consumer confidence, slowing economic growth and tight liquidity have hurt real estate demand in the Mumbai Metropolitan Region -- MDL's key operating market.
Project launches have consequently continued to exceed sales, leading to inventory build-up and price corrections. These subdued market conditions will likely continue to constrain MDL's earnings over the next 12 months.
As such, even if MDL addresses the upcoming bond maturity, Moody's sees limited upside for the rating over the next 12 to 18 months.
In addition to significant refinancing risk, weak financial management as reflected by an inability to execute refinancing plans on a timely basis will continue to weigh on MDL's credit quality.