Unitech denies reports of payment defaults in Noida

Unitech stock fell 50% on Friday. The stock is down 94% from its record close of Rs 538.25 per share on January 2. The management
has planned to file complaint to SEBI for probing share manipulation and has denied reports of default on payment to Greater Noida Development Authority. Management said rescheduled payments are not defaulted as full land was not handed over.

There are market talks of company facing severe cash crunch and is borrowing at over 30% interest rate. The management said borrowing costs are currently about 15.5-16.5%.

Sanjay Chandra, Managing Director of Unitech clarified there are no defaults in Noida as reported, the company didn't get one plot due to farmer agitation. There is a group spreading rumours and the company has decided to approach the regulators for the same.

Chandra said the company has met all debt servicing obligations. He expects significant cash inflows over the next few weeks from some private equity transactions. "All residential projects are totally funded and will be on time. The lower area apartments demand is high and larger apartments is not as much. We have witnessed some stress in shopping mall rentals."

The company has reduced gearing by 0.15x over the last quarter and hopes to cut gearing significantly post telecom divestment, PE deals.

Here is a verbatim transcript of the exclusive interview with Sanjay Chandra on CNBC-TV18. Also watch the accompanying video.

Q: Who you think was dumping your stock on Friday? Nearly Rs 3 crore shares got mark for delivery. People on the street were talking about Lehman selling etc., do you have any clue who sold your stock off?



A: The whole fact is these are all rumours, it said there was Lehman who was selling; Lehman is not even a shareholder of Unitech. So possibly there is a group of people who are working on a concentrated manner spreading malicious rumours about couple of companies at a time and creating the panic and possibly with criminal intension to make some short-term gains for themselves. We as a company have decided to take action and we have spoken to the regulators and they have assured us they will take whatever action is needed to punish whoever has found guilty on this.



Q: There was a talk that there has been a default to the Noida authorities on some purchase of land, can you clarify that issue as well?



A: On that same day itself we clarified to the stock exchange that we had no default for the Noida authority for any land. In both Noida and Greater Noida we have about 10-15% properties over the last one and a half years we have paid over Rs 2,000 crore of payments to the authorities. One particular plot in question is the farmer agitation about 10 months ago, so the government could not give us possession for about 15 months. So in that particular sector of Greater Noida they rescheduled payments for all developers, hence there was no default whatsoever and even the Noida authority had given a clarificatory statement stating the same and besides our clarifying to the exchange, it was still carried prominently everywhere somehow.



Q: The other part of that selling theory is there was a whole quantum of pledge shares that got sold in the market because they hit their stoploss. Does Unitech at this point have any quantity of pledge shares to any entity?



A: As of September 30 and today our share holding is still the same, so we don’t have any concerns on that front.



Q: Do you have any quantum of shares that is pledged to any entity at this point. Let me be candid the name that is been talked about is Indiabulls. Can you confirm or deny that?



A: I don’t think we have anything there.



Q: You are directly saying that no shares have been pledged to Indiabulls against any kind of loan as collateral?



A: We have properties pledged over there.



Q: The other thing that the market is very worried about is that Unitech might be facing an acute cash crunch and it’s probably because there is stock that you are borrowing at very high rates in the market to tide over this cash crunch? Is that factual?



A: It’s not factual at all. We are comfortable; we have met all our debt servicing obligations and we are expecting some significant cash inflows over the next couple of weeks from various fronts. It includes some private equity investments which we are expecting soon in few of our projects as well as our divestment of a telecom stake will bring a lot of debt away from our balance sheet. So that has about Rs 1,200 crore of debt as well as Rs 770 crore of shareholders loans which Unitech will receive back once we get our partner in place.




Q: What is the total amount of unsecured debt that Unitech has at this point and how much of that has been secured against land?



A: Our total net debt is little under Rs 7,700 crore as of the last number. I can’t give you today’s numbers because we are in silent period this year as of our June 30 numbers and 80% of that would be secured with land.



Q: You did clarify that there could be some cash inflows from sale of stakes but we know that the market is quite difficult right now for such things can you give us without expectations of the future your current cash situation and whether you are experiencing some kind of tightness?



A: We are very comfortable right now though we can’t disclose numbers because our results are just down the corner. We are expecting significant inflows from some private equity transactions, which we have already worked on, including the funds which we have raised on our own about a couple of months ago and we are starting to draw down early next month from that fund.



Q: Will you be able to commit the completion of projects that you have undertaken in key markets or do you think there could be lots of delays given the current liquidity situation?



A: No, definitely not because all our residential projects are pretty much totally funded and we typically get financial closures by projects and we don’t mix accounts of projects with corporates. So all our projects would be on time and are making steady progress. We still have 25,000 workers working across various construction sites of ours as of today also and adding more.



Q: The other fear that the market has is that for Unitech customer advances have traditionally being much higher than your peers for e.g. in FY08 it was far higher than any other real estate company. At this point can you give us a status check on where your customer advances are at?



A: Customer advances would be similar. There is an accounting difference which we follow as well as some of the other peers follow. We do not account for the entire sale till percentage of completion is reached while some of our peer accounts for all the sales as soon as they book their apartments. So in some of our peers those would come as sales while for us it comes as an advance which get booked as we progress construction. So it’s the way we account which is relatively more conservative because we don’t book those as revenues till we reach that threshold of completion.



Q: Can you break-up that unpaid land commitment with specific reference to Noida and the Unitech Grande project in money value?



A: Noida and Grande are acquisition cost including stamp duty etc was Rs 2,000 crore. We had five years to pay to the Noida authorities in six monthly instalments. We have already paid out Rs 1,400 crore odd so we have another three years to pay Rs 600 crore and its six monthly instalments and in Greater Noida outstanding would be about Rs 200 crore totals and that’s also five year period still left.



Q: Would you concede as a promoter that your balance sheet is in the current environment with your commitments a bit stretched or even weak?



A: We were facing some stress on the balance sheet on debt equity for sometime. But there are few things which we have done, it is come down actually and its reduced by 0.15 times over the last quarter already and we expect it to come down significantly once the divestment of telecom is done as well as few other private equity deals. So we will bring it down to substantially lower levels, which is better in these environments.



Q: Have you started reducing prices in your key markets given what’s going on, the realities of current situation?



A: Per square feet prices in all our markets remain firm but we are focusing a lot of affordable housing so we have reduced the ticket size a lot by doing smaller apartments. For instance, in Gurgaon our average apartment use to be 2,500 sq ft a lot of volume of is 1,300-1,500 sq ft so actually it starts at Rs 40 lakh and goes up to Rs 60-70 lakh and what we have seen is that the target audience increases and the demand in that sector is still very large. So we have seen that on the affordable signs volumes go up, luxury or larger apartments are selling as fast and we are seeing some strength on shopping centre rentals because the retailers cannot pay the rentals which are prevalent today.



Q: What kind of demand growth are you expecting for that particular segment, for the economy housing segment because some channel checks are showing up that builders are sitting on projects they are not selling them?



A: It’s again what the product is? For example, there is a project of ours in Gurgaon called Nirvana Country where we were doing villas for about Rs 2 crore. We use to sell only about 10 villas in month. We reconfigured the product to make each villa into three apartment so it became ground floor was one apartment, first floor and second floor so the ticket size was the third. We are currently at a run rate of selling 100 apartments a month which is equal to 33 villas. So if you do the smaller ticket sizes, the market is fairly large though with any kind of softening in the interest rates for mortgages then the volumes can increase a lot. So we would wait for some cues on that, we hope the mortgage rate come down and they need to we feel because this is a sector which creates a lot of other employment and economic activity. So we feel the government will have to address it and possibly look at reducing mortgage rates and create housing demand because we do have a housing shortage of about over 23 million units in the country. So as a sector we have a lot to contribute overall.



Q: Will you survive this downturn?



A: Definitely, we have been through quite a few cycles in real estate. We have been around as a company for 36 years and we have seen quite a few ups and downs in real estate.

Source: news.moneycontrol.com