Fitch downgrades Sobha Developers's STD rating to F2+(ind)

Fitch Ratings has today downgraded Sobha Developers Limited's (Sobha) INR1000 million Short-term debt rating to 'F2+(ind)' from 'F1(ind)'.

The downgrade reflects the higher-than-anticipated financial leverage in FY08 (total debt/EBITDA at 5.4x), reflecting the impact of increased debt and a significant increase in the refinancing risk during the course of the year since about 50% of the total debt of INR17.6 billion is repayable during the course of the current year. The refinancing risk is accentuated by the slowdown in the overall real estate market driven by inflationary pressures and increasing interest rates.

Fitch expects Sobha's overall sales growth in FY09 to be lower than that in earlier years. While the company has diversified its geographical presence, a significant portion of the company's on-going projects continue to be in the city of Bangalore, several parts of which have witnessed a drop in property offtake over the last year. The agency expects the liquidity impact on developers, with focus on the premium segment of the market, to be more than those catering to the mid-tier segment. Pending Land Payments to be made by Sobha in FY09 amount to about INR1bn.

The rating continues to reflect Sobha's market position as a premium residential property developer in South India, and its established track record in the contract construction sector. Sobha has over a decade of experience in the residential property market in Bangalore, and has expanded to other cities including Trissur, Coimbatore, Mysore and Pune. The rating continues to be supported by the strength of its cash flows from the contractual construction business, a large proportion of which is driven by Infosys though the company has diversified its customer base and brought other entities in its fold which to an extent cushions it from the impact of the real estate market. The construction being carried out internally mitigates some of the risks of execution.

Sobha, founded in 1995, is a leading real estate developer operating in South India. As of 30 April 2008, Sobha had completed 50 residential/commercial in-house projects and 111 contractual projects covering about 22 million square feet of area. It currently has 67 residential/commercial ongoing projects. It derives its revenues from real estate development and sales (59% of FY08 revenues), contract construction (27% of FY08 revenues), and from manufacturing activity. In FY08, Sobha made revenue of INR 14.4bn and Net Income of INR 2.3bn. The total debt/EBIDTA was 5.4x in FY08, with total debt/equity at 1.9x.

Sourced From: Fitch Ratings India Pvt Ltd