Rating Rationale
September 02, 2020 | Mumbai
Euthoria Developers Private Limited
  'CRISIL A-/Negative' assigned to NCD
 
Rating Action
Rs.29 Crore Non Convertible Debentures CRISIL A-/Negative (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL A-/Negative' rating to the Rs.29 crore non convertible debentures (NCDs) of Euthoria Developers Private Limited (EDPL; a part of Nexus Malls [Blackstone's India retail platform]). EDPL owns 5.4 lakh square feet (sq ft) of Retail Mall, Mall of Amritsar (in Amritsar).
 
The 'Negative' outlook reflects the likelihood that the company's credit risk profile may weaken over the medium term because of the impact of the Covid-19 pandemic on the inflow of lease rentals, vacancy, and rental rates. The ability of EDPL to revert to operational stability and any relief measures provided by the government will be key monitorables.
 
The rating continues to reflect EDPL's stable cash flow from lease rentals, supported by healthy mall occupancy, diverse and reputed clientele, and moderate debt protection metrics. These strengths are partially offset by the exposure to volatility in interest rates and occupancy, and intense competition in Amritsar's real estate market.

Analytical Approach

For arriving at the rating, CRISIL has considered the standalone business and financial risk profiles of EDPL. The company has no financial fungability with other companies of the Nexus Malls group.
 
Unsecured loan (Rs 30.08 crore as on March 31st,2020 ; including accrued interest) extended by the subsidiary, Ruchi Malls Pvt Ltd, has been treated as neither debt nor equity. This is because the loan is subordinated to bank debt and should remain in the business over the medium term.

Key Rating Drivers & Detailed Description
Strengths 
* Stable cash flow from lease rentals and a diverse clientele
The Mall of Amritsar has leasable area of 5.4 lakh sq ft, which is currently 90% leased. The mall has a healthy mix of anchors, vanilla and food and beverage tenants. Tenant concentration is moderate with Top 10 tenants occupying around 51% area and contributing to 34% of minimum guaranteed rentals. The rating also factors in the well-secured lease structure, with a lock-in and weighted average lease expiry of 11.6 years for the Top 10 tenants, and an in-built revenue escalation clause for most tenants. Furthermore, a portion of the total rental is generated through revenue share income.
 
Only about 15% of the leases are expected to come up for renewal over the next three years, yet do not pose any major risk. The mall is expected to benefit from the management's proactive approach towards maintenance, ensuring tenant retention and asset quality in line with its global portfolio.
 
Cash flow for fiscal 2021 is expected to be significantly impacted vis-a-vis fiscal 2020 due to rent waiver given to tenants owing to the pandemic. The company has already negotiated the rentals with around 80% of its tenants post opening of the mall. Stabilisation of rental income by fiscal 2022 and any further impact on fiscal 2021 will remain a key rating monitorable.
 
The mall is expected to derive significant operational synergies from the Nexus Malls group, which has extensive experience in mall management and a sizeable portfolio of retail properties in India.
 
* Moderate debt protection metrics
Steady cash flow from rentals and the ballooning repayment structure of the external debt should moderate debt service coverage ratio over the medium term. Further, NCDs are zero-coupon bonds with redemption in fiscal 2026 with an internal rate of return of 14.2%. However, these NCDs are subordinated to bank debt and will be paid based on the surplus cash flow available after meeting operating expenses and servicing external bank debt. EDPL is expected to benefit from the promoter group's track record of successfully refinancing loans/renegotiating terms of debt at the term of redemption of debt. Furthermore, the company is expected to have a comfortable loan-to-value ratio of less than 40% at the time of redemption, further mitigating refinancing risk. Nevertheless, any significant increase in debt will weaken the debt protection metrics and remain a key rating sensitivity factor. Only excess funds post NCD interest payment will be used for redemption. 
 
Weaknesses
* Exposure to volatile occupancy and interest rates
Rental collection, the main source of revenue, is exposed to volatility because of economic downturns, thereby impacting the tenant's business risk profile and, hence, occupancy and rental rates. Emergence of any competing mall, while unlikely, can also redirect footfalls from Mall of Amritsar. Furthermore, the floating interest rate on debt exposes the company to interest rate risk. Although cash flow will be able to absorb the impact of fluctuations in occupancy and interest rate to some extent, it remains a rating sensitivity factor.
 
* Competition in the Amritsar retail real estate market
Although Mall of Amritsar is one of Amritsar's largest malls, that too in a prime location, there are other retail assets, albeit smaller in size, and established main streets in Amritsar. Moreover, a large-format mall that is likely to be refurbished over the medium term, could heighten competition and hence, is a key monitorable.
Liquidity Adequate

Cash accrual is expected to be sufficient to service debt repayment during the two fiscals through 2022. EDPL has availed of moratorium from its lenders, in line with the relief measure announced by the Reserve Bank of India on payment of instalments and interest. Loan-to-value ratio is expected to be healthy at less than 40% at the time of the redemption of NCDs. EDPL maintains debt service reserve accounts (DSRA) covering three months of debt servicing obligations. It also had cash and cash equivalents of around Rs 3 crore (excluding DSRA) as on 30th July 2020. EDPL is a part of Nexus Malls. The Blackstone Group Inc has enough resources at its disposal, which it can contribute if required.

Outlook: Negative

CRISIL believes the credit risk profile of EDPL may weaken over the medium term, driven by the heightened uncertainty due to the impact of the pandemic.

Rating Sensitivity factors
Upward factors
* Stabilisation of operations with revenue coming back to pre-pandemic levels and visibility on increase in rental income by over 10% per annum thereafterwhile maintaining costs, thereby strengthening surplus generation and debt protection metrics
* Significant reduction in debt through prepayment
 
Downward factors
* Extension of mall shutdown or further reduction in minimum guarantee income, leading to more than 40% impact on earnings before interest, taxes, depreciation, and amortization (EBITDA) for fiscal 2021 vis-a-vis EBITDA for fiscal 2020
* Increase in vacancy by 5% or reduction in rental rates, weakening the debt protection metrics
* Drawdown of additional debt
About the Company

EDPL is a part of Nexus Malls, retail arm of of  The Blackstone Group Inc. It owns and operates the Mall of Amritsar. The mall has leasable area of 5.4 lakh sq ft. It has a well-diversified clientele and had healthy occupancy of 90% as of June 2020.
 
Mall of Amritsar has been demerged from Alpha Corp Development Pvt Ltd into EDPL after the National Company Law Tribunal (NCLT) order on March 31, 2017.

Key Financial Indicators - Standalone
As on/for the period ended March 31 Unit 2020* 2019
Operating income Rs.Crore 48 39
Profit After Tax (PAT) Rs.Crore -1 -7
PAT Margin % -3.0 -17.11
Adjusted debt/adjusted networth Times 0.77 0.81
Interest coverage Times 1.03 0.60
*Provisional

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Complexity Level Rating assigned with outlook
INE714T08013^ Non Convertible Debentures 5-Nov-2015 0% 12-Nov-2025 29.0 Complex CRISIL A-/Negative
^The ISIN is still in the name of Alpha Corp Development Pvt Ltd on stock exchange pending compliances. However, NCDs have been moved to the books of EDPL post NCLT's order of demerger.
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT  29.00
01-09-20  		CRISIL A-/Negative    --    --    --    --  -- 
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs criteria for rating debt backed by lease rentals of commercial real estate properties
Understanding CRISILs Ratings and Rating Scales

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