Unitech Finds A Lifeline

For a company that has been hit the hardest in a sector that has borne the brunt of the most dramatic bear market in the last fifty years, Unitech has found a lifeline. The real estate giant today announced that it had successfully negotiated a deal with telecom giant Telenor to sell Sixty percent of its stake in its mobile telecom enterprise Unitech Wireless. The deal is significant because the 60% stake sale will bring in 6,250 Crore rupees or $1.3 billion for Unitech and for the Norwegian company Telenor, it grants an entry point into India’s rapidly growing telecom market.

The past few weeks have been very difficult for Unitech. The real estate developer was pretty much the poster boy of the real estate stock market boom during the past two years. The stock was a trader’s favorite and rose steadily during the bull run of the past 3 years. But since mid January this year Unitech has been beaten on the market and last week was the absolute fall for the stock.

It declined to half of its market value in the space of six hours. While the management insists that there were a bunch of market manipulators who were responsible for the sharp fall, speculation and volatility have played a huge part. Reports have been surfacing that Unitech has been running out of funds to finance its projects and that it’s the company that has borrowed the most from banks as compared to other real estate companies.

 Therefore it is good news for Unitech that they’ve been able to sell off a major part of their telecom business to Telenor. The company management has maintained that they will mostly use the money raised from the sale to develop their future telecom avenues but that is undoubtedly hard to believe considering everything that has already happened. It’s not going to surprise anyone if it becomes public knowledge that Unitech will use the funds to repair their real estate funding problem.

As far as Telenor is concerned, the deal is seen as a liability. Unitech Wireless does not have a functional base as of yet. It is still in the developmental stage and operations have not begun. Considering the price Telenor have paid and the fact that they will not recover their investment for quite some time has led to criticism of the company. This was seen on the stock price of Telenor which is listed on the Norwegian Stock Exchange which fell by at least 20% during the day’s trade.

In the long run it should bode well for Telenor provided they get their pricing and marketing right. Despite Unitech Wireless’ lack of operations, their fundamental infrastructure has been established. The company has licenses for mobile operations in all circles of the country and has also obtained spectrum rights for 3G enabled services. So even if Telenor is deemed to have agreed to pay too much, it has done so at the favorable cost of entering the world’s second largest mobile market.

Unitech were initially looking only to offload only about 45% of their telecom business but the events of the past month have forced them to increase that to 60%.