In a bid to tide over the current financial crisis, Unitech, the second largest real estate developer in the country, is planning to raise money by selling some of its assets, such as hotels and commercial real estate.
The company, which currently has a debt of Rs 8,200 crore, is also planning to rope in private equity funds for residential projects by March 2009. In addition, it will transfer Rs 1,200 crore of debt to its telecom joint venture.
Talking to Business Standard, Unitech Chairman Ramesh Chandra said the company would raise around Rs 1,500 crore from sale of hotels and commercial space. Besides, it will transfer Rs 1,200 crore of debt to its telecom joint venture and will also realise Rs 300 crore as debt repayment from the joint venture. Unitech had lent Rs 820 crore to the joint venture and given a guarantee for another Rs 1,200 crore.
“By January, Unitech will raise Rs 2,500 crore through these routes,” said Chandra. The company has also decided to sell its plots to schools and hospitals. The company has around 27 plots, mostly of five acres each, and another 15 plots earmarked for hospitals.
Unitech is aiming to divest three of its hotels projects that are nearing completion. Depending upon the success of negotiations, these projects may be divested by 2009. It is already at an advanced stage of discussion to sell Courtyard by Marriot, the 199-room budget hotel in Gurgaon, and expects to close the transaction before January.
“There are quite a few projects, in which the company will form joint ventures with private equity firms. In each of these JVs, the investment size would be in the vicinity of $40 million,” said Chandra.
Chandra, who is one of the oldest real estate players in the country, said, given the current situation, the company had to revisit its projects in terms of ticket size and average price of flats. “Demand for luxury flats of large areas is less. However, if we can manage to increase the affordability either by reducing the area or amenities, I am confident that the demand for residential projects will pick up,” he added.
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However, he warned that the interest cost for borrowers is very high and the government needs to address the issue. If the economy continues to grow at 6 per cent or above, the demand for residential projects is going to increase sooner than later. “However, in case growth comes down below 6 per cent, it is an issue of concern,” he added.
Chandra said one of the key problems for developers in the current crisis is failure of real estate investment trusts (REITS) to take off. “A majority of developers had decided not to sell their commercial assets and intended to transfer them to REITS, which did not take off because of a variety of reasons. This resulted in their investments getting stuck.