Unitech’s Chandra may exit Orissa Sponge for Rs 40 cr
The Economic Times, January 29, 2009, p13
Sanjeev Choudhary & Pramugdha Mamgain
The Economic Times, January 29, 2009, p13
Sanjeev Choudhary & Pramugdha Mamgain
NEW DELHI : THE family of Ramesh Chandra, chairman and promoter of cash-strapped real estate firm Unitech, may raise Rs 40 crore by selling its shares in Orissa Sponge Iron & Steel to Bhushan Steel while scrambling to make ends meet in a sector that is seeing a sharp reversal of fortune. Bhushan Steel already owns 6% in Bhubaneswar-headquartered Orissa Sponge.
Unitech had debts worth Rs 8,300 crore on its balance sheet in September 2008, of which it had to pay back Rs 2,500 by March 2009. The company claims to have whittled this figure down to Rs 600 crore but continues to search for fresh sources of funds. Ramesh Chandra’s family has been struggling to find a buyer for its 12.11% stake in Orissa Sponge after earlier negotiations with Korean steel major Posco came to naught. The Unitech spokesman declined to comment on the deal.
The Chandra family may get Rs 160-170 per share, which is 50% premium over Orissa Sponge’s current share price that closed at Rs 111.95 on the BSE on Wednesday. The scrip gained 21% within a week, and has almost doubled in price since December 8.
After the Chandra deal, Bhushan Steel will own 18% share in Orissa Sponge, and be compelled by Sebi rules to make an open offer to buy another 20% from the market.
“We are still in discussions with Unitech for acquiring the stake. If it happens, it will add to our existing sponge iron capacity in Orissa meant for captive use. Sponge iron will be converted to steel billets that are primarily used in construction,” said a top executive at Bhushan Steel, who did not wish to be named.
The Chandras own the shares in Orissa Sponge through its investment arm Prakausali Investments, which also owns 36% in Unitech. In 2006, the Chandras had 6% share in Orissa Sponge, but raised it to almost 15% in late 2007 in a Rs 21.40 crore deal. The family has been compelled to find ways to raise money after sales in the real estate sector plunged and led to slashed internal accruals. Raising money from investors has also not been easy because private equity is not flowing into the sector, while banks are reluctant to lend. Together, these factors have become a major hurdle for real estate firms and their expansion plans, said a person with knowledge of the development.
Since all potential sources of funding appear blocked, the company is looking at selling stake in Unitech and its projects, and hiving off its hotels to generate cash. In the last one year, the company’s share value has dropped more than 90%. The 40-year-old Orissa Sponge has iron ore and coal reserves and owns 2.5-lakh-tonne sponge iron and steel billet plants in Palaspanga, Orissa.
Unitech had debts worth Rs 8,300 crore on its balance sheet in September 2008, of which it had to pay back Rs 2,500 by March 2009. The company claims to have whittled this figure down to Rs 600 crore but continues to search for fresh sources of funds. Ramesh Chandra’s family has been struggling to find a buyer for its 12.11% stake in Orissa Sponge after earlier negotiations with Korean steel major Posco came to naught. The Unitech spokesman declined to comment on the deal.
The Chandra family may get Rs 160-170 per share, which is 50% premium over Orissa Sponge’s current share price that closed at Rs 111.95 on the BSE on Wednesday. The scrip gained 21% within a week, and has almost doubled in price since December 8.
After the Chandra deal, Bhushan Steel will own 18% share in Orissa Sponge, and be compelled by Sebi rules to make an open offer to buy another 20% from the market.
“We are still in discussions with Unitech for acquiring the stake. If it happens, it will add to our existing sponge iron capacity in Orissa meant for captive use. Sponge iron will be converted to steel billets that are primarily used in construction,” said a top executive at Bhushan Steel, who did not wish to be named.
The Chandras own the shares in Orissa Sponge through its investment arm Prakausali Investments, which also owns 36% in Unitech. In 2006, the Chandras had 6% share in Orissa Sponge, but raised it to almost 15% in late 2007 in a Rs 21.40 crore deal. The family has been compelled to find ways to raise money after sales in the real estate sector plunged and led to slashed internal accruals. Raising money from investors has also not been easy because private equity is not flowing into the sector, while banks are reluctant to lend. Together, these factors have become a major hurdle for real estate firms and their expansion plans, said a person with knowledge of the development.
Since all potential sources of funding appear blocked, the company is looking at selling stake in Unitech and its projects, and hiving off its hotels to generate cash. In the last one year, the company’s share value has dropped more than 90%. The 40-year-old Orissa Sponge has iron ore and coal reserves and owns 2.5-lakh-tonne sponge iron and steel billet plants in Palaspanga, Orissa.
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