Unitech down 9% on failure to repay MF debt

19 Jan 2009, 1122 hrs IST, ET Bureau

MUMBAI: Shares of Unitech were trading 9% lower at Rs 27.40 (at 11.10 AM) on media reports that the Delhi-based real estate company could not mobilize enough funds to repay debts due to mutual funds. The Economic Times, on Friday, had reported that the company had to repay debt to the tune of Rs 1,100 crore to mutual funds this week.

"If mutual funds are to be believed, the company has managed to roll-over almost Rs 500 crore out of Rs 1100 crore that it borrowed through FMPs; this in a way, highlights the company's inability to raise loan and repay debt," said a Mumbai-based broker.

"The company will have retire the rolled-over portion of the debt (about Rs 600 crore) at higher interest rate (say at 14 to 16%). This will compound the debt burden on real estate company," a stock dealer said.

Mutual funds stand to gain more from the roll-over of debt. "Most funds have invested into asset-backed papers of Unitech. Moreover, if there is rollover of debt, investors stand to gain significantly from increased yields (anywhere between 14 and 16%). Considering Unitech's large asset bank, a default is simply out of question," said the CEO of domestic fund house.

Close to downgrading Unitech's long-term rating to 'B (Id)' from 'BBB (Id)' about a week ago, Fitch Ratings, on Wednesday, downgraded Pass Through Certificates (PTAs) that are directly linked to the rating company's national long-term and short-term ratings of Unitech Ltd.

The downgrade signals the company's continued delay in raising the required funds as earlier projected and increasing uncertainty regarding its ability to service its interest cost and fulfil its immediate debt payment obligations.

"Unitech does not have a credit problem; it is only constrained by a severe liquidity crunch. We'll be comfortable with a rollover," the debt fund manager of a Mumbai-based fund house had told ET last week.

Given the weak operational cashflows, the company will resort to asset sales or debt restructuring over the near-term. According to a BNP Paribas report, forced asset sales in the current environment could further erode equity value.

Management indicated that it is in the process of raising Rs 800 crore to tide over the near-term liquidity crisis. Failure to do so could lead to forced sale of underlying assets - primarily land, the report said.

Via:E.T