PR

Press Release
EMBASSY PROPERTY DEVELOPMENTS PRIVATE LIMITED
September 06, 2022
Rating Downgraded & Partly Withdrawn

Product	Quantum (Rs. Cr)	Long Term Rating	Short Term Rating
Non Convertible Debentures (NCD)	2.84	ACUITE BBB- \| Reaffirmed & Withdrawn	-
Non Convertible Debentures (NCD)	2905.00	PP-MLD \| ACUITE BB+ \| Stable \| Downgraded \| Negative to Stable	-
Total Outstanding Quantum (Rs. Cr)	2905.00	-	-
Total Withdrawn Quantum (Rs. Cr)	2.84	-	-

Rating Rationale

Acuité has downgraded its long term rating of ‘PP-MLD ACUITE BBB’ (read as Principal Protected Market Linked Debenture ACUITE Triple B) to ‘PP-MLD ACUITE BB+’ (read as Principal Protected Market Linked Debenture ACUITE Double B PLus) on the Rs.2,155.00 Cr Principal Protected Market Linked Non-Convertible Debentures, also, downgraded its long-term rating of ‘PP-MLD ACUITE BBB-’ (read as Principal Protected Market Linked Debentures ACUITE triple B Minus) to ‘PP-MLD ACUITE BB+’ (read as Principal Protected Market Linked Debentures ACUITE Double B Plus) on the Rs.750.00 Cr Principal Protected Market Linked Non-Convertible Debentures of Embassy Property Developments Private Limited (EPDPL). The Outlook is revised to 'Stable'.

Acuité has reaffirmed & withdrawn its long-term rating of ‘ACUITE BBB-’ (read as ACUITE Triple B minus) on the Rs.2.84 Cr Non Convertible Debentures of Embassy Property Developments Private Limited. The rating withdrawal is in accordance with Acuite’s policy on withdrawal of ratings. The rating is being withdrawn on account of request received from the company and no objection certificate (NOC) received from the investor.

The rating downgrade takes cognizance of the dilution of REIT units secured against the existing NCDs and usage of the same as security against the proposed NCDs (Rs.600.00 Cr), high debt levels in the entity as well as at the group level and the uncertainty on the cash flow timelines from sale of assets to Embassy REIT or to strategic investors, which shall be needed to service the non-NCD debt (especially the upcoming debt obligation in Q3FY23). The downgrade also factors in the lower-than-estimated distributions from REIT units secured against the rated NCDs which shall lead to lower pricipal repayments than envisaged. The rating remains constrained by high refinancing risks given the mix of large amount of NCDs and construction finance outstanding as on June 30, 2022. The total debt outstanding for EPDPL as on June 30, 2022 was approximately Rs.4,137.25 Cr (includes the accumulated interest on NCDs) against the sanctioned debt of Rs.4,418.10 Cr.

About the Company

Embassy Property Dev elopments Priv ate 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 dev elopment, 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.

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 est at e 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.

Demonst rated 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 1.5 times.

Weaknesses

Refinancing Risk
EPDPL’s total debt consisted of construction finance, NCDs, term loans and inter corporate deposit from banks, NBFCs, and group companies. The subdued market scenario in the real estate sector in Bangalore from past two years ending FY21 had affected the cash flows from the existing projects leading to higher dependence on the refinancing of the external bank debt. However, the company has successfully refinanced its existing debt obligations in past. Acuité believes that timeliness and adequacy of such refinancing measures resulting into easing of its liquidity position remains a key rating sensitivity factor along with high refinancing risk associated with existing NCDs post the change in security structure for the proposed NCDs.

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. The Real Estate sector is currently witnessing moderation in demand on account of large amounts of unsold inventory and high borrowing costs, this along with the pandemic has mounted pressure on the industry resulting in lower sales. 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

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 tha 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

Further deterioration in the liquidity position by availing additional debt
Lower than anticipated distribution per units from Embassy REIT
Any inorganic changes to the structure viz. mergers, acquisitions, asset sales etc

Material covenants

None

Liquidity: Adequate

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. 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. Nevertheless, the company was unable to refinance some of its debt in March 2020 due to the ongoing pandemic.

Outlook: Stable

Acuité believes that EPDPL will maintain a 'Stable' outlook over medium term on account of established market position of Embassy group in the real estate industry and diversified cash flow streams. The outlook may be revised to 'Positive' in case the company generates higher-than-expected cash flows through customer advances and achieves its project completion as per scheduled timelines along with higher cashflows from its REIT units to service higher-than- estimated principal obligations. Conversely, the outlook may be revised to 'Negative' in case of stretch in the company’s liquidity position on account of escalation of project costs or lower than expected sales traction towards ongoing projects, which may further increase the dependence on refinancing of debt.

Other Factors affecting Rating

None

Key Financials

Particulars	Unit	FY 22 (Provisional)	FY 21 (Actual)
Operating Income	Rs. Cr.	310.42	207.59
PAT	Rs. Cr.	(89.11)	3597.42
PAT Margin	(%)	(28.71)	1732.98
Total Debt/Tangible Net Worth	Times	1.70	1.83
PBDIT/Interest	Times	0.93	4.85

Status of non-cooperation with previous CRA (if applicable)

Not Applicable

Any other information

None

Applicable Criteria

• 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
• Real Estate Investment Trust (REIT): https://www.acuite.in/view-rating-criteria-81.htm

Note on complexity levels of the rated instrument

https://www.acuite.in/view-rating-criteria-55.htm

Rating History

Date	Name of Instruments/Facilities	Term	Amount (Rs. Cr)	Rating/Outlook
02 Aug 2022	Non Convertible Debentures	Long Term	275.00	ACUITE PP-MLD BBB \| Negative (Reaffirmed)
	Non Convertible Debentures	Long Term	200.00	ACUITE PP-MLD BBB \| Negative (Reaffirmed)
	Non Convertible Debentures	Long Term	600.00	ACUITE PP-MLD BBB \| Negative (Reaffirmed)
	Non Convertible Debentures	Long Term	750.00	ACUITE PP-MLD BBB- \| Negative (Reaffirmed)
	Non Convertible Debentures	Long Term	2.84	ACUITE BBB- \| Negative (Reaffirmed)
	Non Convertible Debentures	Long Term	1080.00	ACUITE PP-MLD BBB \| Negative (Reaffirmed)
02 Aug 2021	Non Convertible Debentures	Long Term	275.00	ACUITE PP-MLD BBB \| Stable (Reaffirmed)
	Non Convertible Debentures	Long Term	600.00	ACUITE PP-MLD BBB \| Stable (Reaffirmed)
	Non Convertible Debentures	Long Term	200.00	ACUITE PP-MLD BBB \| Stable (Reaffirmed)
	Non Convertible Debentures	Long Term	2.84	ACUITE BBB- \| Stable (Reaffirmed)
	Non Convertible Debentures	Long Term	750.00	ACUITE PP-MLD BBB- \| Stable (Assigned)
	Non Convertible Debentures	Long Term	1080.00	ACUITE PP-MLD BBB \| Stable (Reaffirmed)
28 Jul 2021	Non Convertible Debentures	Long Term	2.84	ACUITE BBB- \| Stable (Reaffirmed)
	Non Convertible Debentures	Long Term	275.00	ACUITE PP-MLD BBB \| Stable (Reaffirmed)
	Non Convertible Debentures	Long Term	1080.00	ACUITE PP-MLD BBB \| Stable (Reaffirmed)
	Non Convertible Debentures	Long Term	200.00	ACUITE PP-MLD BBB \| Stable (Reaffirmed)
	Proposed Non Convertible Debentures	Long Term	750.00	ACUITE PP-MLD BBB- \| Stable (Assigned)
	Non Convertible Debentures	Long Term	600.00	ACUITE PP-MLD BBB \| Stable (Reaffirmed)
	Non Convertible Debentures	Long Term	275.00	ACUITE PP-MLD BBB \| Stable (Reaffirmed)
	Non Convertible Debentures	Long Term	600.00	ACUITE PP-MLD BBB \| Stable (Reaffirmed)
	Proposed Non Convertible Debentures	Long Term	750.00	ACUITE Provisional PP-MLD BBB- \| Stable (Assigned)
	Non Convertible Debentures	Long Term	200.00	ACUITE PP-MLD BBB \| Stable (Reaffirmed)
	Non Convertible Debentures	Long Term	1080.00	ACUITE PP-MLD BBB \| Stable (Reaffirmed)
	Non Convertible Debentures	Long Term	2.84	ACUITE BBB- \| Stable (Reaffirmed)
30 Jun 2021	Non Convertible Debentures	Long Term	1080.00	ACUITE PP-MLD BBB \| Stable (Reaffirmed)
	Non Convertible Debentures	Long Term	600.00	ACUITE PP-MLD BBB \| Stable (Reaffirmed)
	Non Convertible Debentures	Long Term	275.00	ACUITE PP-MLD BBB \| Stable (Reaffirmed)
	Non Convertible Debentures	Long Term	200.00	ACUITE PP-MLD BBB \| Stable (Reaffirmed)
	Non Convertible Debentures	Long Term	2.84	ACUITE BBB- \| Stable (Assigned)
27 Mar 2021	Non Convertible Debentures	Long Term	600.00	ACUITE PP-MLD BBB \| Stable (Assigned)
27 Mar 2021	Non Convertible Debentures	Long Term	200.00	ACUITE PP-MLD BBB \| Stable (Assigned)
24 Mar 2021	Non Convertible Debentures	Long Term	200.00	ACUITE Provisional PP-MLD BBB \| Stable (Assigned)
	Non Convertible Debentures	Long Term	1080.00	ACUITE PP-MLD BBB \| Stable (Reaffirmed)
	Non Convertible Debentures	Long Term	275.00	ACUITE PP-MLD BBB \| Stable (Reaffirmed)
	Non Convertible Debentures	Long Term	600.00	ACUITE Provisional PP-MLD BBB \| Stable (Assigned)
12 Jun 2020	Proposed Non Convertible Debentures	Long Term	2100.00	ACUITE Provisional PP-MLD BBB \| Stable (Assigned)
14 Apr 2020	Non Convertible Debentures	Long Term	1355.00	ACUITE BBB \| Stable (Assigned)
14 Apr 2020	Proposed Non Convertible Debentures	Long Term	745.00	ACUITE BBB (Withdrawn)
24 Mar 2020	Proposed Non Convertible Debentures	Long Term	2100.00	ACUITE Provisional PP-MLD BBB \| Stable (Assigned)

Annexure - Details of instruments rated

Lender’s Name	ISIN	Facilities	Date Of Issuance	Coupon Rate	Maturity Date	Quantum (Rs. Cr.)	Rating
Not Applicable	INE003L07069	Non-Convertible Debentures (NCD)	03-04-2020	15	02-03-2030	275.00	PP-MLD \| ACUITE BB+ \| Stable \| Downgraded \| Negative to Stable ( from ACUITE PP-MLD BBB )
Not Applicable	INE003L07077	Non-Convertible Debentures (NCD)	03-04-2020	14.25	02-03-2030	1080.00	PP-MLD \| ACUITE BB+ \| Stable \| Downgraded \| Negative to Stable ( from ACUITE PP-MLD BBB )
Not Applicable	INE003L07184	Non-Convertible Debentures (NCD)	30-07-2021	12.00	30-07-2026	750.00	PP-MLD \| ACUITE BB+ \| Stable \| Downgraded \| Negative to Stable ( from ACUITE PP-MLD BBB- )
Not Applicable	INE003L07150	Non-Convertible Debentures (NCD)	26-03-2021	13.75	28-04-2023	600.00	PP-MLD \| ACUITE BB+ \| Stable \| Downgraded \| Negative to Stable ( from ACUITE PP-MLD BBB )
Not Applicable	INE003L07168	Non-Convertible Debentures (NCD)	26-03-2021	13.75	28-04-2023	200.00	PP-MLD \| ACUITE BB+ \| Stable \| Downgraded \| Negative to Stable ( from ACUITE PP-MLD BBB )
Not Applicable	INE003L07044	Non-Convertible Debentures (NCD)	17-12-2014	12	26-12-2021	2.84	ACUITE BBB- \| Reaffirmed & Withdrawn

Contacts

Analytical	Rating Desk
Aditya Gupta Vice President-Rating Operations Tel: 022-49294041 aditya.gupta@acuite.in Neha Agarwal Senior Manager-Rating Operations Tel: 022-49294065 neha.agarwal@acuite.in	Varsha Bist Senior Manager-Rating Operations Tel: 022-49294011 rating.desk@acuite.in

About Acuité Ratings & Research

Acuité is a full-service Credit Rating Agency registered with the Securities & Exchange Board of India (SEBI). The company received RBI Accreditation as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms in the year 2012. Acuité has assigned ratings to various securities, debt instruments and bank facilities of entities spread across the country and across a wide cross section of industries. It has its Registered and Head Office in Kanjurmarg, Mumbai.

Disclaimer: An Acuité rating does not constitute an audit of the rated entity and should not be treated as a recommendation or opinion that is intended to substitute for a financial adviser's or investor's independent assessment of whether to buy, sell or hold any security. Ratings assigned by Acuité are based on the data and information provided by the issuer and obtained from other reliable sources. Although reasonable care has been taken to ensure that the data and information is true, Acuité, in particular, makes no representation or warranty, expressed or implied with respect to the adequacy, accuracy or completeness of the information relied upon. Acuité is not responsible for any errors or omissions and especially states that it has no financial liability whatsoever for any direct, indirect or consequential loss of any kind, arising from the use of its ratings. Ratings assigned by Acuité are subject to a process of surveillance which may lead to a revision in ratings as and when the circumstances so warrant. Please visit our website (www.acuite.in) for the latest information on any instrument rated by Acuité.