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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Non Convertible Debentures (NCD) | 2365.00 | PP-MLD | ACUITE C | Downgraded | - |
| Total Outstanding | 2365.00 | - | - |
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Rating Rationale |
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Acuité has downgraded its long-term rating to ‘PP-MLD ACUITE C’ (read as Principal Protected Market Linked Debenture ACUITE C) from ‘PP-MLD ACUITE B+’ (read as Principal Protected Market Linked Debenture ACUITE B Plus) on the Rs.2,365.00 Cr. Principal Protected Market Linked Non-Convertible Debentures (NCDs) of Embassy Property Developments Private Limited (EPDPL).
Rationale for the rating The rating downgrade is on account of past delays in servicing of term loan obligations by EPDPL, established through the CRIF High mark report and verbal feedback received from its banker. The CRIF High mark reports continuous delays in servicing of debt obligations pertaining to a term loan facility for the period September 2023, October 2023, November, 2023. Subsequently, this facility under a court approved scheme of arrangement, has been to shifted to another entity ‘ESNP Property Builders and Developers Pvt Ltd’ with effect from December 21, 2023. To confirm the timely servicing of bank debt obligation by EPDPL, Acuité had sought the bank statements and sanction letters from company, however, they have not been made available to it as on the date of this report. Further, Acuite takes note of regular servicing of obligations pertaining to the rated principal protected market linked non-convertible debentures by EPDPL as confirmed by the debenture trustee. In view of the available information and in line with Acuite's Criteria for Default Recognition, the rating has been downgraded due to instances of past default in the banking facilties. |
| About the Company |
| Embassy Property Developments Private Limited (EPDPL) was incorporated in 1996 and flagship company of leading real estate Embassy Group, based out of Bangalore. EPDPL is engaged in development of commercial, residential and retail projects. Embassy Group was incorporated in 1993 by Mr. Jitendra Virwani. The group is one of the leading real estate developer. The group has developed 55+ Million Sq. Ft. In its legacy of expertise spanning 25 years, Embassy Group has covered the entire value chain of real estate from land acquisition to the development, marketing and operation of assets. In addition, the Embassy group owns properties in the hospitality segment and is dev eloping industrial parks and warehouses across India. It also has an extensive land bank of 1000+ acres across India. The operation spread across Indian and international markets that include Bangalore, Chennai, Pune, Coimbatore, Trivandrum, Serbia and Malaysia. The group from time to time partners with several established market players Like, Blackstone, Warburg Pincus, Taurus Investments as well as different financial institutions to execute projects. |
| Unsupported Rating |
| Not applicable |
| Analytical Approach |
| Acuité has considered the standalone business and financial risk profiles of EPDPL to arrive at the rating. |
| Key Rating Drivers |
| Strengths |
| Established presence of Embassy group in the commercial real estate segment The Embassy group is among the largest commercial real estate developers in the country. EPDPL is engaged in development of commercial, residential and retail projects. The group has business parks in locations such as Bangalore and Pune, with upcoming projects in Chennai, and Trivandrum. The group has developed 55+ Million Sq. Ft. In its legacy of expertise spanning 25 years, Embassy Group has covered the entire value chain of real estate from land acquisition to the development, marketing and operation of assets. In addition, the Embassy Sponsor owns properties in the hospitality segment. Demonstrated financial flexibility arising from EPDPL’s investments, including Embassy REIT EPDPL, being the flagship company of the group, has moderate financial flexibility resulting from its investments in the completed commercial real estate portfolio, including its stake in Embassy REIT providing recurring dividend income to EPDPL. In addition, the group sold some of the assets to pare its debt. Support from group entities and adequate asset coverage The rating also draws strength from the free cash flow generation from group entities, including the facility management services and common area management companies of the group, which are also the co-borrowers to some of the loans of the company. The asset coverage available against the entire Principal Protected Non - convertible debentures is more than 2 times as on date. |
| Weaknesses |
| Instance of past delays in servicing of debt obligations Instances past delays in servicing of term loan obligations by EPDPL were established through the CRIF High mark report and verbal feedback received from its banker. The CRIF High mark reports continuous delays in servicing of debt obligations pertaining to a term loan facility for the period September 2023, October 2023, November, 2023. Subsequently, this facility under a court approved scheme of arrangement, has been to shifted to another entity ‘ESNP Property Builders and Developers Pvt Ltd’ with effect from December 21, 2023. Susceptibility of delay in planned monetization of assets and refinancing risk EPDPL’s total debt consists of construction finance, NCDs, term loans from banks, NBFCs, lease liabilities and inter corporate deposit from group companies totalling to Rs. 4578.41 Cr as on March 31, 2023. EPDPL plans to either monetize its assets and prepay the debt or refinance a part of the debt prior to their due dates. As on March 31, 2024 out of the debt outstanding last year, it has transferred part of its construction finance loan to its demerged entity and plans to repay ~Rs. 1000-1200 Cr of its outstanding debt by FY2026 vide its asset monetisation plan. Acuité believes that timeliness and adequacy of such refinancing and monetization measures, resulting into easing of its liquidity position remains a key rating sensitivity factor. Susceptibility to cyclicality and regulatory risks impacting real estate industry EPDPL is exposed to the risk of volatile prices on account of frequent demand supply mismatches in the industry. This is primarily attributable to the high residential property prices due to persistent rollover of bank debt which has had a cascading effect on the overall financing costs. Given the high degree of financial leverage the high cost of borrowing inhibits the real estate developers' ability to reduce prices. Further, the industry is exposed to regulatory risk which is likely to impact players such as EPDPL, thereby impacting its operating capabilities. |
| ESG Factors Relevant for Rating |
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EPDPL undertakes multiple CSR activities and has an existing CSR policy. In FY22, the company has supported for implementing holistic health and hygiene program with focus on preventive healthcare, nutrition and sanitation at government schools in Bangalore. Further, Embassy Group is engaged in multiple ESG initiatives including supporting government schools in Bangalore, public spaces clean up in Bangalore, installation of segregated garbage bins in Bangalore CBD, transformation of 101 under fly-over pillars, among others. Additionally, all the projects undertaken by Embassy Group have IGBC Green Gold Certification or higher. Embassy group has an active engagement towards improvising education, sustainable infrastructure, community engagement and corporate connect. The group aims to facilitate students of Government Schools with a safe learning environment for skill development through holistic interventions in Education, Health and Infrastructure. It has supported more than 85 government schools through educational and infrastructure interventions, build around 10 new government schools amongst others. Embassy group drives positive change by providing infrastructure-based solutions with new frontline services for environmental sustainability and community healthcare, it promotes grassroot results to global problems in the communities it is a part of. Embassy group is a proud partner of TAICT’s (The Anonymous Indian Charitable Trust) Ecogram Waste Management Project, which aims to catalyse communities to develop and implement strategic infrastructure for sustainable environmental management. It has completed several initiatives of public spaces clean-up, installation of segregated garbage, mobile cancer detection unit amongst others. |
| Rating Sensitivities |
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> Timely execution of planned monetization of assets > Timely servicing of all debt obligations |
| Liquidity Position |
| Stretched |
| The group operates in real estate business, which to a large extent is illiquid and highly cyclical and it usually takes time monetize these assets. The existing debt of the group includes loans obtained for general corporate purpose and acquisition and are susceptible to refinancing risk. The group in the past has been able to demonstrate moderate financial flexibility and ability to borrow against the value of its investments in various commercial real estate assets and investments. However, these debt obligations are due for repayment in the medium term and EPDPL plans to service these obligations vide monetization of its assets or refinancing of debt. |
| Outlook: Not Applicable |
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 270.53 | 324.66 |
| PAT | Rs. Cr. | (1023.71) | (89.11) |
| PAT Margin | (%) | (378.41) | (27.45) |
| Total Debt/Tangible Net Worth | Times | 2.17 | 1.70 |
| PBDIT/Interest | Times | (0.21) | 0.93 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not applicable |
| Any other information |
| Acuite has observed that EPDPL reported no defaults in its monthly 'No Default Statement (NDS)' submissions for September 2023, October 2023, and November 2023. However, the credit information bureau report indicates delays in a term loan facility during these months. |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Real Estate Entities: https://www.acuite.in/view-rating-criteria-63.htm |
| Note on complexity levels of the rated instrument |
| In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in |
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