Realty firms are first off block with major fund-raising plans

Realty firms are first off block with major fund-raising plans
The Financial Express, May 20, 2009, Page 1

Corporate Bureau, New Delhi

Real estate companies seem to be first off the block to access capital markets to raise funds, barely days after a stable government at the Centre became a possibility. Unitech promoters said on Tuesday they planned to invest Rs 1,000 crore in the next 18 months by subscribing to convertible warrants—debt paper that can be converted to shares at predetermined prices. The first tranche of Rs 275 crore will be invested in June.

The move is expected to encourage investors in the company about the long-term plans of its promoters, despite a debt overhang of Rs 8,500 crore. The promoters are expected to finance the investment by exiting from non-core businesses. Following the conversion, the promoter stake in Unitech is likely to rise by 7.5-10%. It is currently at 51.2%. Unitech shares rose 10% to close at the NSE at Rs 70.95.

The company told exchanges it would call an extraordinary general body meeting of shareholders for approval. The plan to invest in convertible warrants follows the Rs 1,621 crore that Unitech raised recently through a placement of its shares with investment companies—a qualified institutional placement.

Unitech’s announcement comes just a day after Indiabulls said it planned to raise up to Rs 3,000 crore through the same qualified institutional placement. Company director Gagan Banga said, “We are planning to use the money to invest in our power project, new commercial and residential projects, apart from servicing our debt of Rs 1000 crore.”

Real estate companies have reason to move quickly. The realty index was the largest mover on the BSE on Tuesday. It rose by a massive 12.8%, double the rise in the next best sector, banking, at 6.84%. The IT index slipped despite the 10.1% market surge.

Realty firms had leveraged themselves massively in the stock market in the upswing until last year. The result is a debt overhang that all companies are finding it difficult to service. Other than Unitech, DLF has a debt of Rs 16,358 crore, HDIL has a debt load of Rs 4,000 crore.