restructuring at unitech
TRANSCRIPT
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RESTRUCTURING AT UNITECH
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MACRO-ECONOMIC ENVIRONMENT
(OCT08 FEB09)
Global financial crisis - Tight liquidity, Risk aversion, and
Scarcity of capital=> Having an impact on global economic growth
Slowdown in discretionary and high value
purchases triggered by Rising fear of job loss Reduction in disposable income General negative outlook
=> Revision of growth forecast of Indian economy
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Financial Crisis:Impact on Indian Real
Estate
Sharp reduction in demand for Housing
Delay in payments by existing customers
High cost of debt
Huge challenge to raise funds for projects
High growth prior to downturn led many developers
to expand aggressively by resorting to high debt
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Developers resorted to mutual fund borrowings because of
Non availability of banks funds for land purchases
RBIs limits on banks exposure to the real estate industry
Developers endeavoured to reduce both mutual fund andbank borrowings with customer advances from pre-sales
Developers resorted to capital intensive developmentprojects like hotels, retail malls and amusement parks
contd
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ALLTHIS LED TO-
Short TermAsset Liability Mismatch
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Impacton Unitech
Receivables increased substantially
Sales dipped to an all time low
High leverage -Approx. Rs.10,000 crores of debt (ason Sep 30, 2008)
Significant near term maturitiesApprox Rs. 2,600 crores of loan repayments duringOct08-Mar09
Capital raising became a challenge
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Timely Intervention by Govt/RBI:
Booster for Realtyin India
Stimulus packages by Central Govt., coupled withRBIs monetary policy interventions, had positiveimpact
Lower interest rates helped to revive demand forhousing
RBI allowed banks to treat refinanced loans to realtydevelopers as standard assets instead of NPA. Thishelped developers to RESCHEDULE bank loans
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CONTD. Revision of key policy rates in India by the Government / RBI
boost demand
Special interest rates by PSU banks for home loans up to Rs.0.5 Mn (8%) and between Rs. 0.5-2 Mn (9.25%) encouraged
real estate developers to offer housing at affordable prices
While the economic slowdown curtailed discretionary spends,cheaper credit for home buyers and smaller unit sizes expand
target customer
Implementation of 6th Pay Commission helped to enhancedemand for housing
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Unitech:Four-STEP Strategy
I- Improve operational cash flows: By changingmindset (maximization of realizations to maximizationof volumes)
II- Reduced capital intensity of business: By shiftingstrategy from Land banking to banking on land
III- Monetization of non-core assets: By de-leveraging
through sale of assets like hotels
IV- Debt management: Despite challengingenvironment, Unitech has been able to successfully
manage its debt obligations
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Strategy I: Improving Operational
CashFlows
Focus on affordable housing: Through reduction incosts, unit sizes and margins, able to offer prices
affordable to a wider cross section of customers
Taking cue from bank interest rates for loans below
Rs 20 lakhs, Unitech launch projects priced below Rs
20 lakhs, and also planning below Rs 10 lakhs
Unitechs in-house design & development capability
give it competitive advantage
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Strategy II: Reducing Capital
Intensityof Business
Unitech has large land bank, sufficient for
development plans for next 7-8 years,thus,no plans
to acquire land in near future
No further construction/development activity on
speculation. Construction is underway only forpresold/preleased projects
For commercial assets, Unitech has shifted its
strategy from lease model to sale model
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Strategy III : Monetizationof Non
Core Assets
Marriott Courtyard, Gurgaon: Hotel sold for Rs231 crores.
Repayment of loan by the companies
comprising Unitech Wireless to Unitech Ltd:
Rs. 386 crores
Sale of 4 hotels in Noida, Kolkata and Gurgaon
Induction of private equity at project level
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Strategy IV: Debt Management
Company has been working with lenders to-
Reschedule loans with near term maturities
Keep the cost of debt under control
Collateralize unsecured loans wherever necessary
Replace short term loans with long term ones
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Unitech Wireless: Impacton Unitech
Ltd
Debt totaling Rs. 2,100 Cr transferred to UnitechWireless
Unitech has economic interest of 32.75% in
companies comprising Unitech Wireless
Based on entry valuation of Telenor, Unitechseconomic interest in the companies comprisingUnitech Wireless is valued at ~ Rs. 3,000 Cr i.e. Per
Share Valuation of ~Rs.18
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Cash Flows
Improved sales due to focus on volumes
Unitech received approx. Rs. 386 Cr towards
repayment of loan by the companiescomprising Unitech Wireless, from the first
tranche of investment monies received by the
Unitech Wireless companies from Telenor
Non-core asset sales are expected to
contribute to cash flows
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CONCLUSION
UNITECHS four STEP approach has given positive
results
This result in comfortable liquidity position in due
course of time.
Current debt of company however, is still high but
lower than Rs. 8,400 crores.
De-leveraging will remain a focus area to reduce the
interest expense and to utilize the saved cash for
project development.
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THANK YOU