Unitech Ltd, the country’s second-biggest real estate developer, has assured investors it won’t buy more land in the near future to expand its business.
The assurance was given while marketing its share sale to select investors, through which it raised $325 million (Rs 1,625 crore) yesterday.
The company doesn’t have “plans to acquire further land in the near future, except for extremely attractive opportunities,” the developer assured investors, according to bankers involved with the sale.
The New Delhi-based developer has sufficient land bank to meet its development plans for the next seven-eight years, the company told investors. It plans to use the money to cut debt and expand affordable housing projects to generate liquidity. Developers in the past have borrowed funds at high cost and invested heavily in purchasing land, in anticipation of a surge in demand. But the meltdown in the global economy has pulled down asset prices and stalled demand, creating cash flow problems.
Unitech has developed 1,200 acres of land in five townships, with over 12 million sq ft of real estate development in the past three years. And, has close to 55 million sq ft of projects under development, according to a report released by JPMorgan.
Unitech shares today rose Rs 9.5 or 22 per cent to Rs 52.70 on the BSE. The company’s shares have risen about 30 per cent since January, compared with the 14.26 per cent rise in the benchmark Sensitive index.
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Unitech placed its shares at Rs 38.50 apiece, or 11 per cent discount to the company’s closing share price on the BSE, yesterday. Some of the overseas institutional investors who participated in the issue included HSBC, Prudential, Och-Zif, Orient Global and Sandstone Capital. Though the issue received demand for more than twice the amount, Unitech’s promoters did not want their holding to fall below 51 per cent, a banker involved with the sale said. After the issue, the promoters’ stake in the company will fall to 51 per cent from 64 per cent, implying a 13 per cent dilution, post issue. The company will have to issue 420 million new shares. Morgan Stanley, UBS AG and IDFC-SSKI were arrangers to the sale.
While explaining its strategy to investors, Unitech said that for commercial assets it has shifted from a lease model to a sale model, to generate immediate cash that will help it repay debt.
Unitech has been struggling to repay a part of its burgeoning debt, which spurted to Rs 10,907 crore by December 2008. The total debt on the company’s books as of March 2009 stood at Rs 8,900 crore. Unitech’s debt to equity ratio is expected to drop to 1.4 times its equity, from 2.4 as of December 2008.