The Unitech story: Rise and fall of the realty player

Unitech | Board submitted resolution proposal before Supreme Court. (Image: unitechgroup.com)

At the turn of the century, realty firm Unitech was a rising star with a high market cap, badge of India’s second largest developer and an additional hold in the telecom business.

After a decade, the rising star finds itself in a quagmire of troubles that could shutter it for good. With its telecom business gone, number of housing projects stalled, legal cases for forgery against promoters, and a heavy debt, the company is headed for a massive fall.

Where Unitech stands now

The loss-incurring Unitech’s market value reportedly fell to Rs 1,906.07 crore on December 8, 2017 from Rs 85,236.32 crore on January 8, 2008, when it was still the largest developer in the country.

The company faced its recent setback last week when the National Company Law Tribunal (NCLT) dismissed Unitech’s board on allegations of fund diversion and irregularities in the company’s operations and allowed the government to select 10 directors for its board, Mint reported. The matter is pending before the Supreme Court.

On the other hand, its promoters Sanjay and Ajay Chandra are accused in a forgery case filed by housebuyers of the company’s Gurugram project.

The Supreme Court sent both accused to police custody after the prosecution for custodial interrogation. Unitech has to deposit Rs 750 crore by December to get bail for Sanjay. But the company is in a bind as its fund transactions for personal reasons have been stopped by NCLT.

Sanjay was previously arrested in 2011 in connection with the 2G telecom spectrum scandal, an event which led to the beginning of Unitech's downfall.

This case remains unresolved and its verdict may serve yet another blow to the embattled company. A special CBI court is expected to deliver its final judgements on December 21 on the 2G spectrum corruption cases.

The real-estate giant’s past

By mid-2000s, the real estate sector was seeing high growth and many developers, previously confined to certain cities, expanded their operation to other parts of the country. Unitech was one such developer and massively increased its valuation at this period through landholding. Its land acquisition spree got the company over 14,500 acres.

Unitech reached a peak in 2005 when the government opened up FDI in real estate construction. Unitech was then India’s second largest developer and naturally, foreign investors started taking interest in the firm.

These factors boosted Unitech’s market capitalisation and share prices to a new high. As per a report in The Economic Times, the company’s share price went up to Rs 13,422.80 with market capitalization of Rs 16,765 crore on May 30, 2006. The share prices were down at Rs 428 on June 21, 2005.

In 2007-2008, Unitech, in a bid to diversify its business, applied for the 2G telecom license and won in the bidding process. It did not want to completely depend on the volatile real estate business.

It entered into a joint venture with Norway-based Telenor Group to create Unitech Wireless Ltd.

But when America witnessed the great recession in 2008, DLF, Unitech – leading builders in India faced its after effects. Unitech, which sold seven million square-feet of space in 2007-2008, sold even less than two million sq-ft space in 2008-2009 following the financial collapse that slowed the whole economy down, as per the book Corporate Finance.

The company’s cash flow was severely hurt and servicing debt and meeting other financial liabilities became difficult for the real estate giant.

Before the slowdown struck global economy, Indian real estate developers were buying land at a high price to swiftly acquire them and in turn, selling the developed houses to buyers at exorbitant prices, says the book Marketing Management

With the recession, people’s purchasing capacity went down and unable to sell expensive apartments, Unitech focused on developing low-cost houses. It acquired land for very low prices from villages near to the city for its projects and sold houses for less than Rs 10 lakh in places across Noida and Gurugram.

As of present, media reports suggest that Unitech owes Rs 7,800 crore to over 16,000 homebuyers of its delayed projects. The company also has a heavy debt burden of about Rs 6,700 crore.

The developer was hit again in 2011 by Sanjay Chandra’s involvement in the 2G spectrum scam. Not only was Chandra arrested and the company’s image hurt, it also had to sell off its entire stake in the telecom company to Telenor.

The huge financial obligations have led Unitech to dispose of land and other assets bought through the same debts to retire these debts.

The beleaguered realty firm has sold land parcels in Gurgaon, Noida, Chennai and Hyderabad to boost its cash flow and complete ongoing and delayed projects. Earlier in 2017, Unitech surrendered a big mass of land in Noida to the local development authority as the debt-laden company was unable to clear dues to the tune of about Rs 4,000 crore.