Unitech, India’s second largest listed real estate company, is looking at restructuring a Rs 800-crore loan from public sector banks, as it attempts to save itself from sinking under the huge debt burden. The company is pinning its hopes on debt restructuring, asset and stake sales to private equity (PE) funds to pay a debt of Rs 2,500 crore, which is due by March ’09.
“We are in discussions with public sector banks for rescheduling our loans,” Unitech head of strategy and planning, R Nagraju said. Another company executive, requesting anonymity, said Unitech was seeking to restructure a loan of over Rs 800 crore.
The Reserve Bank of India (RBI) recently allowed banks to restructure loans taken for commercial real estate without turning them into non-performing assets (NPAs). The RBI directive had come following intense lobbying by realty firms, which were finding it difficult to service debt, as sales had dried up and fresh debt was not available.
Most developers are hopeful that banks will reschedule their loans. “It makes sense for banks to reschedule loans, as it will help them show lower NPAs on their books. If banks were to re-possess land, given as collateral by developers, they may get in trouble,” says a Delhi-based mid-sized developer, who didn’t want to be named.
“Land in most cases was over-valued, and prices have been falling since the loans were disbursed. Moreover, in a market, where you have no buyer for land, banks are unlikely to recover even half their cost,” the developer added. Unitech is also expected to pay Rs 200 crore by March for the land it purchased earlier. Mr Nagraju says the company need not pay land dues immediately, as it is yet to get possession of the land.
Unitech is also banking on the sale of its assets, including hotels, office building and land parcels to raise cash. While any deal on its hotel in Gurgaon or office building in New Delhi is yet to be finalized, the company has reportedly sold off a few land parcels meant for institutional use. The company recently sold one school plot for around Rs 30 crore.
Unitech is also looking at raising funds through private equity infusion at company and project levels. Unitech is holding an extraordinary general meeting (EGM) on January 19 to seek shareholder approval to raise Rs 5,000 crore by issuing fresh equity or convertible instruments. The RBI had raised the ceiling for FII holdings in Unitech to up to 100% in November 2007.
The company has been holding negotiations with multiple PE players to raise between $300-$500 million by issuing convertible debentures at the company level and around $200 million by selling stakes in mid-income housing projects.