Unitech more than doubles its latest QIP

The Indian real estate developer raises $575 million in Asia's largest follow-on this year as it fights to reduce its debt.

Indian real estate developer Unitech returned to the capital markets on Friday with its second qualified institutional placement (QIP) in just over two months as part of its ongoing effort to improve its financial position. The company has seen a continued improvement in its share price since it was last in the market in mid-April, and investors are clearly impressed, since they virtually piled into this latest issue, which was offered at a fixed price.

Unitech initially tried to raise Rs27.9 billion ($275 million), but the strong demand and the high quality of the book led the bookrunners to conclude that a much larger deal was possible. And so the total fundraising was increase by 109% to approximately $575 million. This makes it the largest follow-on equity issue in both India and Asia this year, surpassing China Resources Land's $555 million issue and Indiabulls Real Estate's $545 million deal, which were both completed on May 18. In April, Unitech raised $325 million in what was then the first QIP since 2007 and the first under new rules that calculates the floor price for a secondary share sale based on the closing prices over the two-week period before the company's board of directors decides to launch a QIP -- as opposed to over the previous six months as was previously the case.

Unitech had room to upsize since it recently received shareholder approval to issue 1 billion new shares through a variety of means including straight equity and convertible bonds. After being upsized, Friday's offering consisted of 344.3 million shares, or 14% of the enlarged share capital.

The massive increase in the deal size is even more impressive considering that the shares were offered at a very tight 1.5% discount to Friday's closing price of Rs82.25. The placement price of Rs81 was equal to the floor price, or the lowest price it was allowed to sell new shares under Indian regulation. Sources said the bookrunners had a pretty good idea of which investors wanted to buy shares and at what price before launch, which gave them confidence to offer the shares at the tight  discount and with no price range to play with.

In this context, it obviously helped that the same three bookrunners that arranged the deal in April -- IDFC-SSKI, Morgan Stanley and UBS -- were also joint bookrunners on the latest deal. This time though, they got additional help from Credit Suisse, which was added as a joint bookrunner on Friday's transaction.

Together with an okay earnings release from the company the previous day, the "shadow" order book resulted in a lot of momentum with participation from both Indian and international investors. Sources said the book was split pretty evenly between these two types of accounts, with a modest overweight towards foreigners. Because this was a QIP, the number of accounts had to be limited to 49.

Even with a slight correction since June 5, Unitech's share price has more than doubled from the placement price of Rs38.50 in April and is up 90% from the pre-placement price of Rs43.20. However, the stock is still 53% below where it was a year ago, which explains why investors were keen to buy in -- in fact, some of the investors on Friday also participated in the April offering. It also shows how deeply depressed the Indian real estate market was at its lows. Equity investors are also pleased that Unitech is making a serious effort to reduce its debt burden which earlier this year was causing concerns that the company may not be able to meet its interest and debt repayment obligations.

At the end of December 2008, the company had a net debt-to-equity ratio of 1.7 times. Since then it has restructured Rs25 billion ($500 million) of debt due for payment in March 2009 and has announced plans to reduce its overall debt levels from Rs100 billion ($2 billion) through a variety of measures, including asset sales and pre-sales of new projects. It has also told investors that it intends to restructure its longer maturity debt, to swap some of its borrowings for cheaper collateralised loans and to reduce its overall leverage.

The lock-up from the previous QIP expired on June 16 and the fact that the second share sale comes only a week or so later shows how serious the company is about this task.

The day before the placement, the company released its earnings for the full year to March 2009, which showed a 27.9% drop in net income to Rs11.97 billion ($249 million) on a consolidated basis. While a big decline, investors had anticipated that it could be worse and the share price gained 0.3% in Friday's trading.

¬ Haymarket Media Limited. All rights reserved.
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