An Indian real estate company famous for its ties to Donald Trump and infamous for its junk debt rating in 2019 is finally ready to be listed on the 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 blocked its IPO in 2009 and then in 2018 due to unfavorable market conditions, is now seeking to raise Rs2,500 crore ($ 341 million) via public listing.
This is the second largest IPO by a real estate company in India after listing DLF Rs 9,187 crore based in Haryana in 2007. Macrotech Developers plans to use the proceeds of the IPO to repay the debt and buy land for future projects.
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 approximately 150 kilometers from Mumbai, and in London through two properties Grosvenor Square and Lincoln Squareit purchased in 2013.
Macrotech developers gained international fame in 2013 when they struck a deal with former US President Donald Trump to build a 75-story luxury tower in the upscale Worli district of Mumbais. In 2018, Donald Trump Jr traveled to Mumbai for an evening to promote the residential tower. The luxury tower has 400 apartments in addition to an exclusive private jet service for its residents. The starting price for a tower apartment is around Rs11 crore.
But that glitzy project aside, Macrotech Developers hasn’t had the brightest track record. And the Covid-19 pandemic has only made matters worse for the company, as well as for the entire real estate industry in India.
From demonetization to pandemic
India’s real estate industry has been under pressure since 2017, when the government’s decision to demonetize two hard currency notes hurt the economy and consumption. This move has disproportionately affected the real estate industry as much of the property purchase transactions in India are done with black money to avoid taxes.
As demand nearly died out due to demonetization, loan defaults from infrastructure finance giant IL&FS scared credit markets, making it difficult for companies like Macrotech Developers to raise funds.
In 2019, the company’s debt was downgraded by rating agency Moodys to junk status, meaning it poses a risk of default to its lenders. The change in outlook to negative reflects the weakening of the liquidity profile of LDL (Macrotech Developers) due to lower than expected operational sales and delays in executing its planned asset sales, both in London and in India, said Saranga Ranasinghe, assistant vice president and analyst. in the Moodys report.
Therefore, developer Macrotech, then headed by Abhishek Lodha, son of Mangal Prabhat Lodha, focused on affordable residential properties. The company plans to generate 60% of its income from affordable housing, up from 40% in 2019.
As it emerged from a hole, the company’s debt grew and currently stands at Rs 18,662 crore as of December 2020.
But adding to its woes, lockdowns led by Covid-19 have further hurt sales. Job losses and wage cuts have reduced the demand for housing in urban areas. Projects were also delayed due to the abrupt halt in construction activities.
Despite the daunting challenges over the past three years, the company has been able to slowly recover. She was successful in honoring her short-term debt commitments and securing the refinancing of a construction loan. Measures taken by the government and central banks to ease liquidity in the post-pandemic economy have also helped the company.
Considering these factors, Moodys changed its rating of the real estate company from negative to stable in November of last year.
Improved sales of real estate sectors in India
After the unlock, the fortunes of the real estate industry slowly turned.
Low interest rates and falling house prices along with pent-up demand are expected to boost sales. This environment will continue to support housing demand in the country for at least the next 12 months, the Moodys report released in November 2020 said.
What will also help Macrotech developers is the relentless IPO craze. In the last fiscal year (April 2020-March 2021), around thirty companies listed on the Indian stock markets, raising a total of Rs39,000 crore.
But relatively favorable market and macroeconomic conditions do not mean that Macrotech Developers is completely out of the woods. It may face a further downward revision in the future if operational sales and collections do not recover. In addition, the emerging second wave of Covid-19, which is the most severe in Mumbai, could once again plunge the industry into turmoil.
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