Unitech withdraws $700-m FCCB plan
Financial Express, January 20, 2010, Page 4
Rajat Guha, New Delhi
The country's second largest real estate developer Unitech has withdrawn its plans to raise $700 million through foreign currency convertible bonds (FCCBs) amidst strong signals from the government that the current norm prohibiting developers to repatriate profits from investments for a period of three years would not be relaxed.
The Delhi-based company’s plan to raise money via these debt instruments was based on the hope that the government would waive off the three-year lock-in period for foreign capital. The funds that were expected to be raised would have been used by the company to develop integrated townships. Currently, under the government's external commercial borrowings (ECB) norms that also govern FCCBs, there's a three-year lock-in before which one cannot redeem the bonds.
Although the department of industrial policy and promotion (DIPP), the key FDI policy making body, had supported Unitech's proposal, the finance ministry and the Reserve Bank of India opposed relaxation of the lock-in norm, a senior government official, who has dealt with the proposal said.
Unitech had earlier argued with the government that FCCBs 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 the bonds after the maturity period or convert them into equity at a predetermined price. Until then, they carry a nominal rate of interest.
In January 2009, as part of the second stimulus package the government allowed real estate companies to raise funds via ECB for integrated township project.
But except Unitech, no other realty company has approached the government so far seeking permission to raise funds through this route.
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. A Unitech executive said the company has given up its plans to raise money through FCCBs as there was no immediate need for funds.
Last year, Unitech was on a fund-raising spree. It raised Rs 4,000 crore through two rounds of QIPs. Part of these funds were utilised to retire its debts.
Financial Express, January 20, 2010, Page 4
Rajat Guha, New Delhi
The country's second largest real estate developer Unitech has withdrawn its plans to raise $700 million through foreign currency convertible bonds (FCCBs) amidst strong signals from the government that the current norm prohibiting developers to repatriate profits from investments for a period of three years would not be relaxed.
The Delhi-based company’s plan to raise money via these debt instruments was based on the hope that the government would waive off the three-year lock-in period for foreign capital. The funds that were expected to be raised would have been used by the company to develop integrated townships. Currently, under the government's external commercial borrowings (ECB) norms that also govern FCCBs, there's a three-year lock-in before which one cannot redeem the bonds.
Although the department of industrial policy and promotion (DIPP), the key FDI policy making body, had supported Unitech's proposal, the finance ministry and the Reserve Bank of India opposed relaxation of the lock-in norm, a senior government official, who has dealt with the proposal said.
Unitech had earlier argued with the government that FCCBs 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 the bonds after the maturity period or convert them into equity at a predetermined price. Until then, they carry a nominal rate of interest.
In January 2009, as part of the second stimulus package the government allowed real estate companies to raise funds via ECB for integrated township project.
But except Unitech, no other realty company has approached the government so far seeking permission to raise funds through this route.
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. A Unitech executive said the company has given up its plans to raise money through FCCBs as there was no immediate need for funds.
Last year, Unitech was on a fund-raising spree. It raised Rs 4,000 crore through two rounds of QIPs. Part of these funds were utilised to retire its debts.
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