Will Unitech be able to tide over the crisis?
Bengaluru: Slow sales and project delays, liquidity issues and repayment pressure from lenders, rise in customer complaints and court orders to open escrow accounts to closely monitor expenditure and execution—everything that could possibly go wrong has happened in the case of realty firm Unitech Ltd.
Unitech also seems to be a loss of faith of two key stakeholders —customers and lenders—making it tough for the developer to raise money or sell its land parcels.
The company is battling lenders such as Life Insurance Corp. of India (LIC) over repayment issues, and negotiating with customer associations over project delays and delivery schedules.
Unitech posted a net loss of Rs44.82 crore in the June quarter compared to a loss of Rs279.63 crore a year ago. Its revenue increased 27.9% to Rs487.87 crore during the period. Net debt as of 30 June was Rs5,265 crore.
In its 2015-16 annual report, chairman Ramesh Chandra said that given the depressed market conditions, Unitech focused on project delivery against launch and sale of new projects.
“While the focus was on delivery, the company has had to continuously grapple with cash flow and liquidity issues,” Chandra said.
Consequently, the area completed and delivered increased marginally from 3.16 million sq.ft in 2014-15 to 3.99 million sq.ft in 2015-16. In 2015-16, the company earned Rs2,072.27 crore in revenue and posted a Rs902.70 crore net loss.
Unitech, which has many projects in Gurgaon, Delhi and Noida, has been hurt by projects delays, leading to the company being embroiled in multiple cases filed by buyers. Home buyers have been demanding possession of flats, fair compensation for the delay or a complete refund.
On 17 August, the Supreme Court had asked Unitech to refund Rs15 crore to a group of buyers who bought apartments in its Noida and Gurgaon projects that have been delayed. The company and buyers have agreed that Rs15 crore is roughly the principal amount the buyers had paid.
In September, the Delhi high court directed the developer to open escrow accounts in its delayed residential projects in order to protect the interest of home buyers.
“...This order is more stringent than even the provisions of the recently enacted Real Estate Regulator Act (Rera), thus adequately safeguarding the interests of the customers,” Unitech managing director Ajay Chandra said in an earnings statement.
With banks and lenders cracking the whip on realty firms for loan recovery, LIC has taken notional or symbolic possession of Unitech’s land parcel on the Noida-Greater Noida Expressway. Unitech mortgaged the land to LIC and the money was raised on the basis of the mortgage.
“LIC declared the company a wilful defaulter, took possession of the securities, issued a sale notice and took steps to sell the property to recover the dues. But the company, along with the flat owners and the Noida Authority impleaded and jointly filed a stay application with Lucknow debt recovery tribunal (DRT) and DRT has given a stay,” a 7 September Mint report said, quoting a person familiar with LIC’s strategy, estimating total dues owed by Unitech to LIC, including interest, at around Rs2,800 crore.
For the last two years or so, Unitech has been trying to monetize its land parcels and also raise money from investors.
In the coming months, raising external funding will be key for the company, with project cash flows being weak. It will need to expedite the land monetization process in order to speed up construction at its project sites and revive stalled projects.
A Unitech spokesperson said in an emailed response that the company has been working with the Resident Welfare Associations of projects to expedite the process at various sites and persuading homebuyers to pay outstanding dues.
“We have also persuaded some of the financial institutions to give us last mile funding to be able to expedite the progress,” the spokesperson said.
“...In the pending projects to be delivered, the value of the receivables is in excess of balance construction cost to be incurred. With some additional working capital, which we will be raising either from financial institutions and/or sale of surplus properties, we will be able to expedite construction of projects across the country and deliver the same faster,” the spokesperson said.
A 9 September PTI report said that Unitech will raise Rs.300 crore from financial institutions and sale of land parcels to complete over 40 housing projects comprising 13,000 flats within the next two years.
Unitech said it requires Rs2,700 crore to complete 41 pending projects while the receivables from the customers is about Rs4,000 crore, the PTI report said.
“Unitech has a large land bank in Gurgaon and Noida which it is looking to monetize. While selling land in the current market conditions may be tough, it is looking at joint development partnerships with other developers to extract land value,” said Anuj Puri, chairman and country head at property advisory JLL India.