Unitech in talks with PEs to raise $500 m via debt issue

Unitech is planning to raise $300-500 million through an issue of convertible debt instruments to multiple private equity investors.

According to a person with direct direct knowledge of the company’s plan, Unitech, which is desperately looking for a cash infusion to repay a debt of Rs 2,700 crore in three months, is holding negotiations with a host of global PE players, including TPG Axon, Carlyle, Och-Ziff, Sun Apollo and IL&FS funds.The realty firm is looking at issuing debt instruments that will be converted to equity in the next 18 months or so.

At the current market capitalization, $300-500 million would equate to 22-36% of the company’s equity stake. The promoters, Ramesh Chandra and family, own 74.5% stake in the company. According to an investment banking executive, the conversion price could be in the range of Rs 60 a share, but it couldn’t be independently verified.

Unitech is also looking at raising about $200 million from its various residential projects through special purpose vehicles. UBS is advising Unitech on its entire fund-raising effort. Unitech MD Sanjay Chandra said, “Multiple funds have shown interest in investing in the company as well as its projects. We are evaluating the proposals.”

Unitech’s board approved the proposal to raise Rs 5,000 crore through the issuance of securities. However, there are doubts about the Gurgaon-based company’s ability to find an investor at an attractive price. An analyst with a Mumbai-based domestic brokerage says it won’t be easy for Unitech to raise funds and no institutional investor will be willing to pay a huge premium for investing in the company.

Unitech shares declined by 7.5% on BSE to close at Rs 42 on Tuesday. Fitch Ratings on Tuesday downgraded Unitech’s long-term rating to ‘BBB(ind)’ from ‘A-(ind)’. The downgrade reflects the ongoing delay in the completion of asset sales, and its impact on Unitech’s ability to service its short-term debt obligation, according to Fitch.

On December 11, Singapore-based securities broking group Kim Eng came out with a report on Indian realty in which it mentioned that Unitech has to raise Rs 1,800 crore over the next three to four weeks to stay afloat.

Meanwhile, Unitech’s Gurgaon hotel deal may get delayed over the valuation. While Unitech has been expecting a valuation of Rs 270 crore, the potential buyers — four businessmen who separately run Dilbagh, Vimal, Pan Bahar and Rajshree gutkha companies — are not willing to pay more than Rs 210 crore, said a person who is leading the discussions. While hotel chains like ITC and Accor have also evinced interest, a source said Unitech will have to considerably lower its asking price for a deal to go through with the hotel companies. A Unitech executive said the deal may not go through as the gutkha players lack funds to back the deal.

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