It has come to the knowledge that Unitech, second-largest real estate company in the sphere of India, is set to raise $700 million through foreign currency convertible bonds (FCCBs). The company, in this context, has looked for approval from the Department of Industrial Policy and Planning (DIPP) and the Reserve Bank of India.
What is the real objective of this initiative? Well, Unitech has already assured the government that the fund will be used for an integrated township and not for repaying existing debts. As per a key official of the company, Unitech will guard against the fund raised through this route for a dedicated project (integrated township) through an escrow account.
It has to be mentioned, relying on reports on hand, the FCCBs are raised from foreign institutional investors and banks while the holders of FCCBs have the option to either redeem the bonds after the maturity period or convert them into equity at a pre-determined price. Nevertheless, till at that point in time, the bonds contain a nominal rate of interest.
Only in January 2009, as part of the second stimulus package, the government allowed real estate companies to mop up funds by way of external commercial borrowings (ECBs) for integrated township project. However no realty company had approached the government in quest of permission to raise fund through this route.
As indicated by analysts, one of the main reasons that is making Unitech opt for overseas to raise money is to reduce the general cost of debt, which is in the region of 13%.
Everything considered, Unitech is recklessly determined with regard to fund-raising. It has already raised $900 million, on a par with Rs 4,000 crore, through two rounds of qualified institutional placements (QIPs). In June, it raised $575 million at Rs 82 per share. Prior to this, in March 2009, the company raised $325 million at Rs 38.50 per share.
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