UNITECH WITHDRAWS $700M FCCB

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UNITECH, India’s second-largest real estate company, has withdrawn its proposal to raise $700 million (Rs 3,200 crore) through foreign currency convertible bonds (FCCBs).

The Indian realty segment was hit bad by the recent financial slowdown as demand for new homes dried up even as cost of finance went up. Feeling the pinch, Unitech had approached the Department of Industrial Policy and Planning (DIPP) and the Reserve Bank of India (RBI) seeking waiver of the three-year lock-in period to enable the transferability of the proposed FCCB. This was the first time a realty firm had sought to raise funds using this route in more than two years.

The government had permitted real estate companies to raise funds through the external commercial borrowings (ECBs) route for specified projects in January as part of its stimulus measures, reversing an earlier blanket ban on such overseas borrowings by these firms imposed in May 2007.

However, in its January decision, the government laid down strict conditions that the funds could be used only for a specified project and not at the level of holding company. This strict condition ensured that no realty company approached the government for permission to raise funds using this route.

   A senior government official said the Department of Economic Affairs has refused to give waiver from 3-year lock-in, as it would have resulted into many realty firms accessing overseas markets through this route.

A Unitech spokesperson refused to comment for this story.

The Delhi-based company has already raised $900 million in two tranches through private placement to qualified institutional investors in 2009, and was aiming to raise fresh funds to bring down its debt. In June 2009, Unitech raised $575 million at Rs 82 per share. In March, it raised $325 million at Rs 38.50 per share.  

Unitech was looking overseas to raise financial resources to bring down the overall cost of debt, which is around 13%, said a senior company official requesting anonymity. In January 2009, the company had a total debt of more than Rs 10,000 crore, more than two times its then market value. “Since the current debt is around Rs 5,600 crore, the company would not raise fresh funds,” said another company official.

However, in its proposal, Unitech had assured the government that options to convert FCCB into equity shares would only be available to those FCCB holders, which are either registered with the market regulator –Securities and Exchange Board of India or are non-resident Indian (NRIs).

The bonds are issued to foreign institutional investors and banks, and its holders have the option to either redeem them after the maturity period or convert them into equity at a pre-determined price. Until then, the bonds carry a nominal rate of interest.

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