Unitech promoter plans to raise stake by 10%

In a notification to BSE, Unitech said that it plans to take shareholders’ approval for issuing warrants to the promoters, also indicated its plans to issue securities to raise long-term funds.

A little over a month after diluting stake, the promoter Chandra family at Unitech Ltd, India’s second largest real estate firm by market value, is considering raising its stake by 10% through an issue of convertible warrants.

The promoters currently hold a 51% stake in the company. The Chandra family will invest Rs1,000 crore in the next 18 months by subscribing to the warrants, a person familiar with the development said on condition of anonymity. In June, Unitech will invest Rs275 crore to subscribe to the warrants, this person said. A warrant is a security that gives the holder the right to either buy or sell securities, usually equity, from the issuer at a specific price within a certain time frame.

The promoters will raise funds for buying the warrants by exiting from certain non-core businesses, the person said. This will be similar to their decision in February to sell their stake in Orissa Sponge Iron and Steel Ltd for around Rs40 crore. “Post capital infusion, (the) debt-equity ratio of the company will reduce a lot... This also shows the confidence and commitment of the promoters in the company,” the person said. In a notification to the Bombay Stock Exchange (BSE) on Tuesday, Unitech said it plans to take shareholders’ approval for issuing warrants to the promoters. It also indicated that it would issue securities to raise long-term funds but did not indicate the sum.

The board on Tuesday approved both the proposals. The company has called for an extraordinary general meeting on 16 June to take the shareholders’ approval for the proposals. “Clearly, fund-raising in this environment will be considered favourably by the markets,” an analyst with an international brokerage firm said, who declined to be named. “But it is not clear from where the promoters will get the money to increase their stake.” Last month, Unitech raised $325 million (Rs1,543.7 crore) through a qualified institutional placement (QIP), in an attempt to part-retire its short-term debt. A QIP is a private placement of equity shares or securities convertible to equity by a listed company with qualified institutional buyers approved by market regulator Securities and Exchange Board of India. The QIP was done at Rs38.50 a share and resulted in a 13 percentage point-dilution of stake of the promoter family to 51% from 64%.

In recent weeks, real estate developers have been trying to raise funds through the equity route either to reduce debt or fund projects. Last week, DLF Ltd, India’s largest developer by market value, said its promoters had sold a 9.9% stake in the company for Rs3,860 crore to raise money to buy out hedge fund DE Shaw and Co. Lp.’s investment in DLF Assets Ltd, also promoted by them, and to infuse fresh capital into the latter. Indiabulls Real Estate Ltd is also raising around $600 million through the QIP route. Unitech has a debt of Rs8,500 crore and plans to reduce debt through the sale of assets such as hotels, office complexes and ready properties. Shares of Unitech were up 10.61% to close at Rs70.90 on BSE, while the benchmark Sensex index was up by 0.12% and BSE’s realty index, an index of 14 real estate companies, jumped 12.80%.