New Delhi: Even as share prices of real estate developers crumbled on Friday, the shares of Unitech Ltd, India’s second largest developer by market value, held their ground. They were down 1.37% on a day when the Bombay Stock Exchange (BSE) Realty index of 14 realty stocks fell 5.14% and the benchmark Sensex was down 1.88%. Unitech shares closed at Rs35.90.
Investor hopes were raised on the expectation that Unitech would soon issue fresh equity that would help it pay the Rs2,500 crore of debt that has to be repaid at the end of this fiscal year. Unitech’s high level of debt is a worry. For example, a 31 October research report by Enam Securities India Research said “high leverage is still a concern”.
The company will ask investors at an extraordinary general meeting, or EGM, due on 19 January, for permission, in a so-called enabling resolution, to increase its authorized share capital by Rs5,000 crore by offering shares to investors. The decision to call a special meeting of shareholders rather than wait for the annual meeting could mean that Unitech has already lined up strategic investors to buy its new issue of equity.
“We are not sure when or how much we will raise,” said R. Nagaraju, general manager, corporate strategy and planning, at Unitech. “The dilution is unlikely to be to one investor and could involve several investors,” he said.
That suggests the realtor is keeping its funding options open. Some analysts who spoke on condition of anonymity believe that Unitech might have already signed a memorandum of understanding with investors. “The enabling resolution that Unitech had the previous year to raise money has expired,” an analyst with another international brokerage firm said. “They are probably in a position to close the deal because it is an EGM and not a regular meeting. A deal could be expected by June.” An analyst with a domestic brokerage firm said Unitech is in talks with a couple of private equity firms to raise capital.
Some analysts say that the company could choose to sell convertible debt for now that will become equity a few years down the line. “The equity dilution may not be immediate,” an analyst with an international brokerage firm said. “It might be through a mix of compulsory convertible debentures or foreign currency convertible bonds.”
The promoters of Unitech currently own 74.6% of the company’s share capital. The company’s market value at the end of trading on Thursday was Rs5,909 crore.