Fitch downgrades Unitech's rating

Ratings agency Fitch Ratings on Tuesday downgraded realty major Unitech Ltd's (Unitech) Long-term rating to 'BBB-(ind)' from 'A-(ind)' (A minus) and maintains its negative long-term rating outlook. The downgrade reflects the ongoing delay in the completion of asset sales, and its impact on the company's ability to service its short-term debt obligation, the global credit rating agency said.

The Negative Outlook reflects Unitech's reduced liquidity position, as the company is facing significant maturities during the next six months (principal amount around Rs 27 billion) and the ensuing substantial refinancing risk. The liquidity risks are accentuated by the tightness of the credit environment.

The Outlook also reflects potential further negative pressure on cash flow generation and credit metrics, stemming from a more adverse real estate sector environment than previously envisaged.

"With Rs 15 billion (Rs 1,500 crore) of repayments due in December 2008 and January 2009, Unitech's ability to manage these repayments remains largely dependent on the potential cash flows from the sales of assets and investments," Fitch added.

Further, the next three to six months remain crucial for the company and the current ratings remain contingent upon Unitech's ability to manage its ongoing debt maturities, Fitch noted.

The earmarked asset sales include various completed properties which the company had earlier expected to retain on its books, as well as investments such as telecom. Fitch expects around Rs 1,500-1,600 crore to be raised through these initiatives over the near term. However, any further delays in obtaining these cash inflows would result in further downward pressure on the ratings.

Earlier, on November 11, 2008, Fitch had said that it expected the asset sales to be completed by December 2008, and noted that the unsuccessful completion of the projected asset sales would trigger a ratings downgrade.