Press Release Forum Projects Private Limited September 21, 2020 Ratings Amount Rating Action Type of facility Ratings1 (Rs. Crore) Revised from CARE BBB- (Under Credit Watch with Negative Implications) CARE BB+; Stable Long Term Bank (Triple B Minus) 70.00 (Double B Plus; Outlook: Facilities (Under Credit Watch with Negative Stable) Implications) and removed from credit watch Revised from CARE BBB-/CARE A3; (Under Credit Watch with Negative Implications) CARE BB+; Stable/CARE A4+ Long Term/Short (Triple B Minus/A Three) 20.00 (Double B Plus; Outlook: Term Bank Facilities (Under Credit Watch with Negative Stable/ A Four Plus) Implications) and removed from credit watch 90.00 Total (Rs. Ninety Crore Only) Details of instruments/facilities in Annexure-1; for classification of instruments/facilities please refer to Annexure-3 Detailed Rationale and Key Rating Drivers The revision in rating assigned to the bank facilities of Forum Projects Private Limited (FPPL) takes into account the COVID19 induced stress in the real estate sector which in turn affected the construction activities and liquidity profile of the company. Further, rating action also takes into account the proposed extension of COD of Galleria Mall by twelve (12) months, delay in receipt of committed stage payments from the customers and the slow traction in the sale. The rating is also constrained by moderate traction in the sales for the project-‘Atmosphere’, risk associated with sale/leasing of unoccupied space in the ‘Galleria Mall’ coupled with risk of non-renewal of lease agreements after the lock- in period, timely completion of the on-going projects, leveraged capital structure marked by moderate debt protection matrix and risk inherent to real estate sector. The rating however continues to derive strength from the experienced promoters with established brand image of the group in the real estate sector, favorable location of the projects with major regulatory approvals in place, achievement of financial closure with timely infusion of funds by the promoters and presence of escrow account with the lenders. Rating Sensitivities Positive factors Timely and successful completion of the on-going projects without any significant cost over run Negative factors Sustained slowdown in the sales of balance inventory coupled with further delay in receipt of stage payments from the sold units/ spaces Further delay/deferment in achievement of COD for the Galleria Mall Project Detailed Description of key rating drivers Key Rating Weaknesses Slow traction in the sales for the Project -‘Atmosphere’ High end luxury residential project - ‘Atmosphere’ was launched in Jun-2011 and the construction for the same has successfully completed in December, 2018 with construction work left for upper two floors in both the towers. However, around 1.0 lsf area (i.e. ~17% of total saleable area) which comprises of 17 dwelling units is yet to be sold. The movement of inventory has remained reasonably slow since inception because of higher ticket size of the dwelling units. Since the partial occupancy certificate has been received and handing over for fit-out of sold units have started, the management senses acceleration in the sales in the coming months. 1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications. 1 CARE Ratings Limited Press Release Risk associated with sale/leasing of unoccupied space in the ‘Galleria Mall’ coupled with risk of non-renewal of lease agreements after the lock-in period The Galleria Mall is a retail cum commercial complex, wherein the company has already sold around 1.74 lsf till Aug’20 and has successfully entered into lease agreements with prospective tenants for around 1.50 lsf; collectively aggregating to around 88% of the total area. Sale/ leasing of the unoccupied space coupled with successful turnout of the already leased out area post the opening of the Mall will remain a key rating sensitivity. Further there exists a risk of non-renewal of rent agreements and/or renegotiations of lease rental post expiry of the lock- in period. However given the past track record of the group in Mall management coupled with reputed brands (anchor stores occupying around 55% of total leasable area) provides comfort to some extent. Moderate risk associated with timely completion of project The on-going projects (i.e. Footprints and Galleria Mall) are proposed to be developed at a total project cost of ~Rs.211 cr. More than 93% of total project cost (i.e. Rs.138.5 cr.) for Galleria had already been expended till January 31, 2020. The project- ‘Galleria’ is nearing towards completion and is expected to become operational by July 2021 (revised from July 2020). Project Footprints is in also in line with the project construction schedule and around 97% of total project cost (i.e. Rs.72.1 cr.) has been expended till January 31, 2020. Timely completion of the projects within the estimated cost remains a key rating sensitivity. Leveraged capital structure Leveraged capital structure is marked by high overall gearing of 4.35 times as on March 31, 2019 as against 4.11 times as on March 31, 2018. The company has total debt of Rs.626.22 cr. as on March 31, 2019 which includes term debt of Rs.239.47 cr. from banks/NBFCs, preference share of Rs.75 cr. and unsecured loan of Rs.310.87 cr. from related parties. Key Rating Strengths Experienced promoters with established brand image of the group in the real estate sector Promoters of FPPL are in the business of real estate development for over five decades in the Eastern India having base in Kolkata, West Bengal. Over the period of time they have built-up area of approximately 40.0 lakh sq. ft., with landmark projects like Forum Shopping Mall in Kolkata, Forum Mart in Bhubaneswar, Infinity and Technopolis-I buildings at Salt Lake Sector V in Kolkata. Currently, the day to day operations are looked after by Mr. Rahul Saraf, Managing Director, having more than two decades of experience in the Real Estate Industry. Favorable location of the projects equipped with modern amenities The project ‘Atmosphere’ and ‘Footprints’ are located in one of the prime locations of Kolkata (i.e. EM Bypass and Ballygunge) and will cater to the premium/ ultra-premium residential real estate market in Kolkata. Given the limited supply of premium residential projects in the area, supply demand fundamentals may outweigh depressed macro- economic environment. The ongoing residential projects are equipped with modern facilities/ amenities which includes clubhouse with gymnasium, indoor games, banquet hall, swimming pool etc. The upcoming ‘Galleria Mall’ is first of its kind in Rourkela, with no other big malls in the city. Due to presence of residential townships and colleges in the close vicinity, the mall is expected to garner good response post its proposed opening in Q2FY22 (revised from Q2FY21). Major regulatory approvals already in place The company has received all the major approvals from the appropriate authority(s) which includes police department, airport authority, urban land ceiling, height clearance, microwave, water, electricity, fire & emergency, environmental clearance. All projects have been registered under their respective Real Estate Regulation Act barring ‘Galleria’ Project at Rourkela whose registration is under process. Further, the company has also received partial completion certificate for the Project-‘Atmosphere’ from Kolkata Municipal Corporation dated January 03, 2019. Achievement of financial closure for on-going projects and timely fund infusion by the promoters FPPL has an ongoing residential (i.e. Footprints based at Kolkata, West Bengal) and a commercial project (i.e. Galleria based at Rourkela, Odisha) proposed to be developed at a total project cost of ~Rs.211 cr. The total project cost of Rs.211cr. is being financed through promoter contribution of Rs.86.8crore, customer advances of Rs.44.2 cr. and debt of Rs.80crore. The financial closure for the debt portion has already been achieved. These projects are in advance stages of 2 CARE Ratings Limited Press Release completion and till January 31, 2020, FPPL has expended around Rs.199 crore which is financed through promoter’s contribution of Rs.76.07crore, customer advance of ~Rs.52.91 crore and debt to the tune of ~Rs.70.44 crore. Presence of escrow account with the lenders There is escrow mechanism for all the projects under which the company shall open, establish and maintain the escrow account with the Account Bank acceptable to lender. The said account shall be maintained and operated by the borrower during the entire tenure of the facility and shall not be closed without the prior written approval of the lender. All the scheduled receivables, payments related to the projects are to be routed through the said account and thereafter the monies shall be utilized firstly towards due interest and secondly towards the principal repayment of facilities. Further, the amount repaid through escrow account as mandatory pre-payments will be adjusted towards the quarterly instalments as payable in the forward order of maturity i.e. on FIFO basis. Risk inherent to real estate sector Kolkata real estate sector is highly fragmented and the local players provide stiff competition. The industry is capital intensive and highly cyclical. However, Kolkata premium/ sub-premium residential real estate industry is less sensitive to any economic slowdown owing to lack of entry of national level players due to dearth of investor confidence controlling supply side factors and good demand from end driven users. Further the real estate market is negatively related with the interest rate cycle. High interest rate discourages buyers from borrowing to finance real estate purchases and also increases the cost of construction for developers. The banks have already taken a cautious approach and have reduced their exposure to the sector and hence, most developers now rely on their private sources/ customer advances for the project funding.