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TRUMPING THE IPO

A debt-laden Indian realtor with a Trump connection is all set for an IPO

Trump-India-Lodha
REUTERS/Danish Siddiqui
Promoting properties.
  • Prathamesh Mulye
By Prathamesh Mulye

Writer, banking and economy

An Indian real estate company famous for its connection with Donald Trump and infamous for a junk debt rating in 2019 is—finally—set to list on Indian stock exchanges.

Riding on the ongoing stock market boom, Macrotech Developers, formerly known as Lodha Developers, will launch its initial public offering (IPO) on BSE and the National Stock Exchange tomorrow (April 7). The company—which stalled its IPO first in 2009 and then in 2018 due to unfavourable market conditions—is now looking to raise Rs2,500 crore ($341 million) via the public listing.

This is the second-biggest IPO by a real estate firm in India after Haryana-based DLF’s Rs9,187 crore listing in 2007. Macrotech Developers plans to use the IPO proceeds for repaying debt and buying land for future projects.

Macrotech’s Trump

Founded by billionaire politician Mangal Prabhat Lodha in 1995, Macrotech Developers has a significant presence in India’s financial capital Mumbai. The company also has a footprint in Pune, a city about 150 kilometers from Mumbai, and in London via two properties—Grosvenor Square and Lincoln Square—it bought in 2013.

Macrotech Developers shot to international fame in 2013 when it entered into an agreement with former US president Donald Trump to build a 75-storey luxury tower in Mumbai’s upscale Worli area.  In 2018, Donald Trump Jr visited Mumbai for a promotion party for the residential tower.  The luxury tower has 400 apartments in addition to an exclusive private jet service for its residents. The starting price for an apartment in the tower is around Rs11 crore.

But this glitzy project aside, Macrotech Developers has not had the shiniest track record. And the Covid-19 pandemic has only made things worse for the company, along with the entire real estate sector in India.

From demonetisation to pandemic

India’s real estate industry has been under pressure since 2017 when the government’s decision to demonetise two high currency notes hurt the economy and consumption. The move dented the real estate sector disproportionately because a large part of property purchase transactions in India is done with black money to avoid taxation.

While demand nearly died due to demonetisation, loan repayment defaults by infrastructure financing behemoth IL&FS spooked the credit markets, making it hard for companies like Macrotech Developers to raise funds.

In 2019, the company’s debt was downgraded by rating agency Moody’s to a “junk” status, which means it poses the risk of defaulting on repayments to its lenders. “The change in outlook to negative reflects the weakening in LDL’s (Macrotech Developers) liquidity profile because of lower than expected operating sales and delays in execution of its planned asset sales, both in London and India,” Saranga Ranasinghe, assistant vice president and analyst, said in the Moody’s report.

Hence, Macrotech developer, by then run by Abhishek Lodha, the son of Mangal Prabhat Lodha, shifted its focus towards affordable residential properties. The company expects to generate 60% of its revenue from affordable housing compared to 40% in 2019.

While it was pulling itself out of a hole, the company’s debt mounted and currently stands at Rs 18,662 crore as on December 2020.

But adding to its woes, Covid-19-led lockdowns further dented sales. Job losses and pay cuts meant the demand for housing in the urban areas plummeted. Projects were also delayed as construction activities came to a grinding halt.

Despite the surmounting challenges over the last three years, the company has been able to slowly recover. It managed to meet its short-term debt commitments and get refinancing for a construction loan. The government and central bank’s moves to ease liquidity in the post-pandemic economy also helped the company.

Taking these factors into account, Moody’s changed its rating for the real estate firm from negative to stable in November last year.

India’s real estate sector’s sales improving

Post unlocking, the fortunes of the real estate sector have slowly turned.

Low interest rates and drop in property prices along with pent-up demand are expected to drive sales. “This environment will continue to support housing demand in the country at least over the next 12 months,” said Moody’s report released in November 2020.

What will also help Macrotech Developers is the unabating IPO mania. In the last financial year (April 2020-March 2021), around 30 companies listed on Indian stock markets, raising a total of Rs39,000 crore.

But relatively favourable market and macro conditions don’t mean Macrotech Developers is completely out of the woods. It may face a rating downgrades again in the future if operating sales and collections fail to recover. Also, the emerging second wave of Covid-19, which is most severe in Mumbai, could push the sector into a turmoil again.

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