Unitech restructures debt from mutual funds

Fund managers agree to roll over Rs 500 cr for three months.

Accentuating the growing cash crisis in real estate, Unitech Ltd, India’s second-largest listed realty company, has rolled over almost Rs 500 crore out of Rs 900 crore that it borrowed through the fixed maturity plans (FMPs) of about half a dozen mutual funds.

Under an agreement with the mutual funds, Unitech has repaid nearly Rs 400 crore and is rolling over the remainder for three months at 14 per cent interest, significantly higher than, say, 6 per cent for a 10-year government paper, but lower than the 16 per cent at which Unitech originally borrowed the money, mutual fund industry sources said.

Under the restructuring plan, none of the mutual funds have released any of the company’s collateral.

The company has raised around Rs 1,400 crore from FMPs. Of this, around Rs 900 crore was slated to mature on January 19. The company has paid the Rs 400-odd crore through a combination of internal accruals and fresh credit limits from banks, sources said.

The rest of the FMP borrowings (that is, Rs 500 crore) will mature in 12 to 14 months.

On why mutual funds have agreed for a three-month rollover, a senior fund manager said, “Based on our assessment, the situation will improve substantially in this period since the credit situation has started improving. Secondly, cash flow would also improve.”

Unitech CEO Sanjay Chandra declined to comment. Unitech’s stock has been battered for most of 2008 owing to its heavy debt obligations. The share price dropped to Rs 31.10 on January 16, 2009 against a 52-week high of Rs 546 on January 2, 2008.

The company is carrying debt of around Rs 8,350 crore on its books against a market capitalisation of Rs 5,050 crore. It has already restructured loans worth Rs 1,000 crore from public sector banks.

The company expects to get around Rs 800 crore from the redemption of non-convertible debentures issued by Unitech to Norwegian firm Telenor, its joint venture partner in its telecom venture, by the end of this month. Sources close to developments added that around Rs 1,200 crore of debts on Unitech’s books would be transferred to the telecom company by the end of this month.

Unitech has also been talking to investors to sell some of its assets to raise money to repay debt. A few hospital and school plots are on the block near its office building at Saket in Delhi plus a 199-room hotel property in Gurgaon.

In November, ratings agency Fitch had lowered Unitech’s long-term debt to A- from A+.