November 12, 2014 / 9:42 AM / 5 years ago

Fitch Rates Indiabulls Real Estate's USD175m Notes Final 'B+'

(The following statement was released by the rating agency) MUMBAI/SINGAPORE, November 12 (Fitch) Fitch Ratings has assigned India-based Indiabulls Real Estate Limited's (IBREL; B+/Stable) USD175m 10.25% senior notes due on 12 November 2019 a final rating of 'B+' and Recovery Rating of 'RR4'. The final rating follows the receipt of documents conforming to information already received, and is in line with the expected rating assigned on 29 October 2014. The senior notes were issued by Jersey-based Century Limited, a wholly owned subsidiary of IBREL, and they will be unconditionally and irrevocably guaranteed by IBREL and its key subsidiaries. The notes will rank pari passu with IBREL's and the other guarantors' existing and future senior unsecured indebtedness. The notes are therefore rated at the same level as IBREL's rating of 'B+'. Fitch has taken a consolidated view of IBREL because of the strategic and operational linkages among its operating subsidiaries. Only IBREL's key subsidiaries have extended guarantees to the proposed notes. If the operations of any non-guarantor restricted subsidiaries improve to account for 5% or more of IBREL's consolidated EBITDA, they will be required to extend guarantees to the notes in the future. In addition, Fitch expects that, if required, IBREL would be able to access cash or assets of the non-guarantor restricted subsidiaries, which have minimal debt. There are also cross-default provisions covering debt of over USD15m for the non-guarantor restricted subsidiaries. The proceeds of the notes will be used to repay prior financing obtained to fund IBREL's London property purchase. KEY RATING DRIVERS Diversified Projects: IBREL has projects across India, with significant presence in the key metropolitan areas of Mumbai, Delhi (NCR) and Chennai. The residential projects also cover various categories from middle-income to luxury. The diversity mitigates risks arising from volatility in a particular category or location. Diversified, Low-Cost Land Bank: IBREL has a land bank of about 7 million square metres, which is sufficient to support project development over the next six to seven years based on current plans. The diversity and low cost of IBREL's land holdings are likely to support its project growth and its sound profitability. IBREL's EBITDA margin in the year ended 31 March 2014 (FY14) was 31.2%. High Debt Levels: IBREL's debt has increased during FY15 following a largely debt-funded acquisition of property in London for INR16.2bn. Fitch expects the company's debt levels to peak in FY15 and remain high during the next two years. Fitch expects the leverage, as measured by the net debt/ adjusted inventory, to remain around 40%-50% as the company is likely to replenish its land bank. The agency expects the company's contracted sales to gross debt to weaken to around 0.6x in FY15 (FY14: 1x) due to the high debt, although this is likely to improve to 1x over the next two years. Strong Long-Term Growth: Fitch expects the Indian real estate market to expand strongly in the medium to long term, supported by increasing demand that is driven by improving economic growth, limited supply in the key cities and rising income levels. The youthful Indian population and increasing urbanisation are also likely to support demand. Demand is also likely to increase due to the government's aim to provide housing for all by 2020 and its plans to develop about 100 cities/ townships. Cyclical Sector: The real estate business is inherently cyclical and is highly sensitive to macroeconomic conditions. Thus any weakening of macroeconomic factors may impact demand. These risks are mitigated over the near to medium term by expectations of improving GDP growth in India. Regulatory Risks: The real estate business in India is largely regulated by the local authorities with some approvals from the state or central government required in some instances. Any delay in approvals or change in regulations may impact the development of IBREL's projects. London Property Introduces FX Risk: IBREL's US dollar notes will expose the company to foreign exchange risks because the majority of its earnings are currently in the Indian rupee and it will start to develop the London property only after FY17. This is partly mitigated by current lease rentals at the London property, which are sufficient to meet part of the interest cost on debt that IBREL took to finance the acquisition. The foray into London also exposes IBREL to risks associated with development of the site, such as obtaining planning permission and fluctuations in material costs. RATING SENSITIVITIES Negative: Future developments that may, individually or collectively, lead to negative rating action include - Fall in EBITDA margin to below 25% - Net debt/ adjusted inventory exceeding 50% - Contracted sales/ gross debt of below 1x. Positive: Future developments that may, individually or collectively, lead to positive rating action include - Successful development of properties in London - Diversification of projects with no single project accounting for more than 10% of total sales Contact: Primary Analyst Hasira De Silva, CFA Director +65 6796 7240 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard #35-05 Suntec Tower Four Singapore 038986 Secondary Analyst Muralidharan R Director +91 22 4000 1732 Committee Chairperson Vicky Melbourne Senior Director +61 28256 0325 Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email:; Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Additional information is available on Applicable criteria, "Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage", dated 28 May 2014, and "Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers", dated 20 November 2013, are available at Applicable Criteria and Related Research: Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage here Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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