TEXT-Fitch downgrades Parsvnath Developer Ltd's ratings

(The following statement was released by the rating agency)

Aug 26 - Fitch Ratings has today downgraded Parsvnath
DeveloperLimited's (PDL) (PARV.BO: Quote, Profile, Research) Issuer Rating to 'A-(ind)' (A
minus(ind)) from A(ind)'. The Outlook is Stable. Simultaneously,
Fitch has downgraded PDL's INR2bn long-term debt and INR9bn
long-term bank loan ratings to 'A-(ind)' (A minus(ind)) from
A(ind)' respectively, and its INR1bn short-term debt to
'F2+(ind)' from 'F1(ind)'. At the same time, Fitch has also
assigned a rating of 'F2+(ind)' to PDL's INR1bn proposed
short-term debt program.

The downgrade reflects the weakening of PDL's credit metrics
through financial year-end 2008 (FYE08) and Fitch's expectation
that debt levels will continue to remain high throughout FYE09.
The agency notes that FY08 revenues and EBITDA were substantially
below anticipated levels while debt was slightly more than
projected by the company; PDL's short-term debt did not reduce as
projected in FY08. The company's level of negative free cash flow
(FCF) was substantial at 47% of its revenue for FYE08, owing to
its high working capital requirements totaling INR11bn. The
working capital requirement increase reflects the lower advances
and higher debtors. With higher indebtedness to cover negative
FCF, PDL's net adjusted leverage (total adjusted net
debt/EBITDAR) increased to 2.2x in FYE08 from 1.3x the previous
year. The ratings factor in a further moderate weakening in net
adjusted leverage during FYE09, arising from PDL's outstanding
land payment of INR3.6bn, its expenditure for Nano City project
(INR4bn over 10 years) and further expenditure on the Special
Economic Zone at Kancheepuram.

Fitch has also considered the growing liquidity pressure on
PDL, with a significant increase in refinancing risk in FYE09;
since about 52% of the total debt of INR17bn(includes over draft
of INR2.95bn against fixed deposits) outstanding as on FYE08 is
to be re-financed, including INR6bn of short-term debt. As on 18
August 2008, PDL has refinanced INR3.9bn of loans. Also, around
INR2.3bn of land payment has to be paid from now till FYE09 as
per current commitments.

The rating downgrade takes into account the agency's
increasing concern over the impact of the tightening bias of
India's monetary policy together with slowing industry demand on
the performance of PDL, especially given the latter's large
quantum of area under construction (76mnsft) and total
development rights (209mnsft). Due to the tightening monetary
polices and growing funding pressures, the market is expected to
see moderation in prices and a slowdown in transactions in
different regional markets. As such, PDL has shown flat sales in
Q1FY09 vis-a-vis Q1FY08.

The possibility of the housing downturn continuing longer and
becoming deeper than currently anticipated could further erode
the company's liquidity position and negatively impact the
rating. Also, any significant increase in debt for investments,
land acquisitions or capex could act as a negative rating
trigger. PDL's planned entry into the telecommunications business
would further weaken debt metrics, although Fitch will take a
view on the telecommunications business as and when plans are
finalised. Conversely, the agency views that an improvement in
credit metrics and an improved outlook for the industry could
have positive rating implications for the company.

At FYE08, PDL's total adjusted debt net of cash was 2.2x
operating EBITDAR, whereas total adjusted debt was 48.5% of total
adjusted capitalisation. The corresponding figures for the
previous period were 1.3x and 40.9%, respectively. The
significant deterioration in leverage is primarily due to a
substantial increase in debt to INR17bn at FYE08 from INR10bn in
FYE07. The company had a cash balance of INR4.2bn at FYE08.

PDL is among the larger real estate developers in India.
Having started as a real estate marketing company in 1990, it has
operated as a builder-developer since 1994. The company made
INR5.8bn in operating EBITDAR on revenue of INR17.2bn in FYE08.
The corresponding figures for Q109 were INR1.2bn and INR3.7bn,
respectively.