New Delhi: Shares in Unitech Ltd rose more than 4% on Wednesday after the second-largest listed Indian real estate firm said it would spin off some businesses, including telecoms into a separate company.
“Good thing is they can focus on the businesses separately,” said Neeraj Dewan, director at Quantum Securities in New Delhi.
“Nobody was happy with a real estate firm owning assets in telecom, hotels. They should have done it earlier. There’s no immediate short-term benefit from this, but for the long term, it’s a good move,” he said.
Unitech managing director Sanjay Chandra told Reuters the spin-off would help unlock value, with the infrastructure businesses expected to command a price separately.
“All these assets were not being valued by the markets at all. We were primarily known as a real estate company,” Chandra said. “Now they can not cut it off in a rounding off error.”
“We did have an infrastructure expertise in the past also, but we were not leveraging it in the last so many years. Now with the whole emphasis on infrastructure, we felt we can grow another Unitech equivalent in infrastructure,” he said.
New Delhi-based Unitech said in a corporate presentation on its website the spin-off would help the businesses focus on growth with independent management strategies and also provides flexibility to raise financing.
“Infrastructure business is not hindered by restrictions on real estate financing,” Unitech said, adding foreign investment, local and foreign borrowing norms were stricter for real estate than for infrastructure.
For every one share held in Unitech Ltd, shareholders will get one share of the new firm Unitech Infra Ltd.
Unitech said the spin-off would be effective 1 April, and after getting regulatory approvals, Unitech Infra would be listed on the Bombay Stock Exchange and the National Stock Exchange.
Under the restrucuring plan, Unitech Infra will house telecoms, management of amusement parks, construction, hotels, special economic zones. Unitech will have a 35% stake in Unitech Infra.
Unitech’s telecom joint venture with Norway’s Telenor, in which the Indian firm owns about 33%, will also be part of the new firm.
Chandra said there was no plan to cut their stake in the telecom venture in the next 3-4 years.
For the nine months ended last December, the businesses of Unitech Infra were estimated to have posted a profit of Rs565 million ($13 million) on revenue of Rs327 crore, Unitech said in the presentation.
Unitech Infra will have a gross debt of Rs350 crore and net worth of Rs4980 crore, it said.
By 0451 GMT, Unitech shares were trading 2.2% higher at Rs85.40 in a Mumbai market up 0.5%, having risen as much as 4.3% earlier.
The shares had gone up 4.6% on Tuesday in anticipation of the spin-off announcement and also aided by an interest rate increase that was in line with expectations.
Morgan Stanley, UBS and local investment bank IDFC Capital advised Unitech in the transaction, while Ernst & Young advised on the share entitlement ratio.