Surge in Lodha’s overseas bond yields raises fears of stress; co says no instance of default

A surge in overseas bond yields of Lodha Group, India’s biggest real estate company, by almost 71 percent suggests it could be under major stress due to the overall liquidity crunch being faced by the real estate sector.

The company, in a statement to Moneycontrol, allayed fears of interest or repayment default but admitted that it is facing challenges and is hit by the liquidity crunch in the market. “There is no instance of Lodha having defaulted on interest payment or repayment to any lender,” a Lodha Group’s spokesperson said.

“Over the past few months, there has been lot of news about Lodha’s financial health and large debt. Market conditions are bad and liquidity is tight across sectors, particularly real estate. Lodha has certainly been impacted by this,” the spokesperson confirmed.

“Lodha has term sheets in place for its bond, which is due in March 2020. Rating agencies want definite documents, which Lodha aims to have in place within the next three months, well before the bond matures. In the interim, rating agencies may downgrade the bond because of market conditions,” the company said.

The Lodha bond is extremely thinly traded (volume of less than $10 million/quarter) and hence, price is highly variable (previous low of 85 in 2015, peak of 108 in 2017; went to mid-80s in Dec 2018, 97 in March 19 and now down to 70s), the spokesperson added.

As for the company’s operational performance, the company’s London project is complete and deliveries have started. The second project will get completed in the current fiscal. Lodha should receive about 600 million pounds from these projects, after paying off project debt.

The company said it has delivered more than 10,000 residential units last year and spent Rs 4,400 crore on its construction. “Sales receivables from completed residential buildings or those that will be completed in the next 18 months stands at Rs 27,000 crore.” Moreover, it has rental assets worth Rs 2,000 crore.

Collections and earnings before interest, tax, depreciation and amortisation (EBITDA) for FY19 stood at Rs 9,200 crore and Rs 3,700 crore, respectively, it stated.

The company said it had not invested in any new land purchase for several years now.

Experts said this indicates that securities issued by Indian realtors in overseas market may not find takers in the near term, given the challenges they face on the home turf.

“Liquidity crisis and negative sentiment for luxury residential projects in India has started to impact securities issued by Indian real estate players in overseas markets too. The yields on $325 million bonds issued by Lodha have spiked sharply, which indicates that Investors holding the bonds expect the company to default on its repayment obligation and are dumping it in the market,” Sandeep Batra, Associate Director, Capital Markets & Investment Services at Colliers International India, said.

Developers, he warned, will also be left with no choice but to sell inventory at deep discounts or face defaults on their debt obligations.