Global rating agency Fitch today downgraded the credit rating of the real estate firm Unitech and placed it in the "default" category.
Noting that financial restructuring was essential for Unitech to avoid a liquidity crunch and default in repayment of debts, the rating agency said, "Fitch has, therefore, treated the restructuring as an effective default."
Fitch lowered the credit rating of various long-term debt programmes of the company from 'B-(ind)' to 'D', which is assigned to "entities or financial commitments which are currently in default".
When contacted, Unitech's spokesperson refused to comment on the developments.
Unitech, the second-largest real estate company in the country, was badly impacted by the current slowdown hitting the real estate sector.
Describing the financial restructuring agreed by banks, financial institutions and mutual funds as "coercive", Fitch said, "restructuring has not resulted in significant impairment of the commercial terms for creditors."
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The terms of debt restructuring, it added, include extension of maturity with higher interest or additional security.
Although the rating agency has also lowered the credit rating of other short-term debt programmes of the company, it said, sale of assets, including a hotel property and office complex in Delhi, inflow of funds from Telenor and raising of equity through qualified private placement (QIP) were "likely to reduce liquidity pressure in the short-term".
These developments along with improvement in "operating environment" could result in the rating outlook, currently negative, being revised to stable.
The negative rating outlook, it said, "reflects Fitch's expectation that the operating environment in the Indian real estate sector will continue to remain challenging in 2009, making asset monetisation and project sales difficult to achieve."
Monetisation of assets and sale of projects, Fitch said, would be crucial for repayment of debts which was rescheduled following restructuring of debt.