Unitech’s $700-m FCCB plan hits regulatory wall
The Economic Times, December 29, 2009, Page 1
Deepshikha Sikarwar & Arun Kumar NEW DELHI
UNITECH’S plan to raise $700 million through foreign currency convertible bonds (FCCBs) has run into trouble, with the finance ministry and Reserve Bank of India (RBI) objecting to the developer’s request to exempt it from a three-year lock-in clause applicable to such investments in construction.
Unitech is looking overseas to lower the overall cost of debt, at around 13%, though it said the FCCB money would be used to develop a township. India’s second-largest realtor had argued that as FCCBs are convertible instruments, they should be treated as debt till the time of conversion and they would be issued to portfolio investors.
FCCBs are bonds that allow the bondholder to redeem them after the maturity period or convert them into equity at a pre-determined price. Until then, they carry a nominal rate of interest.
Despite the reservations of RBI and the ministry, the Foreign Investment Promotion Board (FIPB)—the nodal agency for foreign investments—will take a final call on the issue at its next meeting, said a government official privy to the development. A Unitech spokesman had no comment on the development.
The department of industrial policy and promotion (Dipp), the key government body responsible for framing foreign investment policy, had supported Unitech’s proposal. It suggested a waiver of the lock-in in a letter to the finance ministry.
Foreign direct investment (FDI) in construction is allowed through the automatic route, but with riders. The government had imposed the lock-in in real estate to prevent an asset bubble.
Unitech raising fund
EARLY last year, the reserve Bank of India wanted the sector to be removed from the automatic route and investments be routed through FIPB.
But in January, realty companies were allowed to raise funds through external commercial borrowings for specific projects as part of the government’s stimulus measures, reversing a blanket ban on such borrowings imposed in May 2007.
If Unitech were to get FIPB’s approval, this would be the first case of a realtor being allowed to raise funds through the FCCB route.
The company had sought FIPB’s permission in March to raise Rs 5,000 crore through global depository receipts (GDRs), but deferred its plan due to the mandatory lock-in.
Unitech has been on a fund-raising spree this year, mopping up $900 million (Rs 4,000 crore) through two rounds of qualified institutional placements. In June, Unitech raised $575 million at Rs 82 per share. In March, it raised $325 million at Rs 38.50 per share. Part of these funds has been used to cut debts, which were at Rs 12,000 crore not so long ago.
The Unitech scrip closed at Rs 82 per share on December 24. At this price, the company has a market capitalisation of Rs 19,600 crore.
The Economic Times, December 29, 2009, Page 1
Deepshikha Sikarwar & Arun Kumar NEW DELHI
UNITECH’S plan to raise $700 million through foreign currency convertible bonds (FCCBs) has run into trouble, with the finance ministry and Reserve Bank of India (RBI) objecting to the developer’s request to exempt it from a three-year lock-in clause applicable to such investments in construction.
Unitech is looking overseas to lower the overall cost of debt, at around 13%, though it said the FCCB money would be used to develop a township. India’s second-largest realtor had argued that as FCCBs are convertible instruments, they should be treated as debt till the time of conversion and they would be issued to portfolio investors.
FCCBs are bonds that allow the bondholder to redeem them after the maturity period or convert them into equity at a pre-determined price. Until then, they carry a nominal rate of interest.
Despite the reservations of RBI and the ministry, the Foreign Investment Promotion Board (FIPB)—the nodal agency for foreign investments—will take a final call on the issue at its next meeting, said a government official privy to the development. A Unitech spokesman had no comment on the development.
The department of industrial policy and promotion (Dipp), the key government body responsible for framing foreign investment policy, had supported Unitech’s proposal. It suggested a waiver of the lock-in in a letter to the finance ministry.
Foreign direct investment (FDI) in construction is allowed through the automatic route, but with riders. The government had imposed the lock-in in real estate to prevent an asset bubble.
Unitech raising fund
EARLY last year, the reserve Bank of India wanted the sector to be removed from the automatic route and investments be routed through FIPB.
But in January, realty companies were allowed to raise funds through external commercial borrowings for specific projects as part of the government’s stimulus measures, reversing a blanket ban on such borrowings imposed in May 2007.
If Unitech were to get FIPB’s approval, this would be the first case of a realtor being allowed to raise funds through the FCCB route.
The company had sought FIPB’s permission in March to raise Rs 5,000 crore through global depository receipts (GDRs), but deferred its plan due to the mandatory lock-in.
Unitech has been on a fund-raising spree this year, mopping up $900 million (Rs 4,000 crore) through two rounds of qualified institutional placements. In June, Unitech raised $575 million at Rs 82 per share. In March, it raised $325 million at Rs 38.50 per share. Part of these funds has been used to cut debts, which were at Rs 12,000 crore not so long ago.
The Unitech scrip closed at Rs 82 per share on December 24. At this price, the company has a market capitalisation of Rs 19,600 crore.
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