CRISIL has revised its rating outlook on the long-term bank loan facility of Ozone Shelters Pvt Ltd (OSPL) to ‘Negative’ from ‘Stable’, while reaffirming the rating on the same at ‘B’.

The outlook revision factors in slower-than-expected construction progress, lower-than-expected customer advances, and increase in debt funding to Rs.400 million from an earlier estimate of Rs.300 million. OSPL has term loan obligations of Rs.400 million in 2011-12 (refers to financial year, April 1 to March 31), in addition to around Rs.510 million on construction spending and finance expenses. CRISIL believes that unless operating cashflows improve over the next two quarters, OSPL may not have sufficient funds to meet its large upcoming repayment obligations.

The rating reflects OSPL’s below-average financial risk profile marked by weak liquidity, and inadequate financial flexibility as a result of poor project economics and extension in the project execution timeline to June 2012 from the original expected completion date of September 2011. These rating weaknesses are partially offset by the benefits that the company derives from its promoters’ experience in real estate development.

Outlook: Negative
CRISIL believes that OSPL will continue to face risks associated with the timely completion of the project and delays in receipt of customer advances which may impact its ability to service its maturing debt on time. The rating may be downgraded if the project faces further time or cost overruns or lower-than-expected customer advances leading to deterioration in OSPL’s debt repayment capability. Conversely, the outlook may be revised to ‘Stable’ in case of higher-than-expected sales realisation resulting in improvement in the company’s liquidity.

About the Company
OSPL, incorporated in June 2008, is part of the Bengaluru (Karnataka)-based Ozone group. The company is developing a residential project (Evergreens) on a 9-acre land in Bengaluru, under a joint development agreement with Keystone Construction (the land owner). The project has a total saleable area of 878,864 square feet, of which, OSPL’s share is 66 per cent; the balance belongs to Keystone Construction. The total cost of development is estimated at Rs.1.7 billion. The multi-storied residential complex consisting of eight towers was launched in January 2009. It has been delayed because of a slowdown in the realty sector resulting in a delay in the sanction of term loan by the bank.

The Ozone group is involved in the development of information technology (IT) parks, office space, malls, hotels and service apartments, and residential apartments and townships with a presence in Chennai (Tamil Nadu) and Bengaluru. The group’s flagship company is Ozone Propex Pvt Ltd, promoted by Mr. S Vasudevan, Mr. C P Bothra, and Urban Infrastructure Venture Capital Fund through its scheme, Urban Infrastructure Opportunities Fund. The group includes several companies that are joint venture equity partners on project-specific basis.