Reeling under debt

Unitech, the second biggest real estate player is overburdened with short term loans and is struggling to keep its head above water. The company's difficulties are further compounded since they are unable to raise fresh loans to service existing ones.

Noor Mohammad Delhi, Hardnews

Overburdened with short-term loans and facing serious cash-flow problems, India's second biggest real estate player Unitech Ltd is struggling to keep its head above water. It is facing difficulties in raising fresh loans to service the existing ones, with bankers and financial institutions wary of lending to the real estate sector when stock markets are in the dumps. Meanwhile, credit ratings agencies have downgraded the company's various loan instruments on concern that it might default on repayment. The company has failed to mobilize required Rs. 5,000 crore fund as per schedule. And given the widespread perception that the real estate sector is due for further price correction, Unitech's fund mobilization plan seems unlikely to be going anywhere.

Unitech has a total debt of about Rs 8,000 crore, of which Rs 2,500 crore was due for repayment in the period up to March 31, and another Rs. 2,500 crore later in 2009. But taking advantage of the government's stimulus package, Unitech has got loans worth Rs 1,000 crore rescheduled. It is negotiating with banks for roll-over of another Rs 500 crore loan. As part of the second stimulus package, the Reserve Bank of India has relaxed non-performing asset (NPA) classification norms for commercial real estate advances, which are restructured till June 2009.

Meanwhile, the Industrial Finance Corporation (IFCI) sold 1.75 crore shares pledged with it by Unitech promoters at the National Stock Exchange (NSE) in a bulk deal. The IFCI resorted to this move after the promoters defaulted on repayment of loans raised against the mortgaged shares.  That indicates that Unitech is having problems raising money.

The IFCI's move that came just ahead of the extraordinary general meeting (EGM) called by the company on January 19 to seek investors' approval for raising  Rs 5,000 crore to meet its loan repayment obligations, put  downward pressure on Unitech's share prices. Analysts expect a further drop in the coming trading days.

Hardnews finds out, Unitech promoters have been periodically pledging shares since March 2008 to raise money. The promoters borrowed Rs. 200 crore from Indiabulls Financial Services, which was repaid in November 2008. Analysts believe about eight per cent of the promoter shares are pledged with lenders. One of the non-banking finance companies (NBFCs), DBS Chola Finance, had on December 24, 2008 sold 1.28 crore shares of Unitech's shares.

Meanwhile, international credit ratings agency Fitch has downgraded Unitech's various loan instruments on concern that the company might fail to raise funds to meet repayment obligations on its short-term debts. Fitch has said that the downgrade reflects the company's continued delay in raising the required funds as earlier projected and increasing uncertainty regarding its ability to service its interest cost and fulfill its immediate debt and land payment obligations.

Fitch has also noted that Unitech's immediate ability to service or refinance its debt obligations is largely dependent on asset sales and the cash inflow from Telenor ASA to repay an estimated Rs. 1100 crore of debt repayment due during January. While the company has made some progress on its asset sales and fundraising from other sources, the quantum and timing of these remain uncertain, increasing the risk of delays in servicing its debt obligations in a timely manner.