From real estate kings to 2G scam, the rise and fall of Unitech’s Chandras

After Unitech Managing Director Sanjay Chandra stepped out of Delhi’s Tihar Jail in 2012, where he was interned the year before for his alleged involvement in the 2G scam, many were ready to give him a second chance. In spite of its disastrous telecom foray, and the fact that the real estate bubble had burst, Unitech had a large land bank, which an astute man like Chandra could leverage to good effect.

That was not to be. Unitech’s real estate business never really revived. On March 31, Chandra, along with older brother Ajay, was arrested by the Economic Offices Wing of the Delhi Police for allegedly duping homebuyers in a Gurugram project. In a matter of ten years, life has come full circle for the 44-year-old.

The Chandra family, father Ramesh and sons Ajay and Sanjay, were ranked 7th in The Billionaire Club, Business Standard’s annual ranking of the country’s wealthiest people, in 2007, with a net worth of over Rs 30,000 crore. The real estate boom was at its peak, and Unitech was one of its poster boys: the Chandras were the second wealthiest developers in the country after Kushal Pal Singh of DLF.

By 2009, real estate had gone into decline. Unitech had by then bought 14,000 acres of land across the country. To bankroll these purchases, the company planned to raise $1.5 billion by listing some assets in a real estate investment trust in Singapore and another $1 billion from investors. Before the company could make the first move, the markets went into a tailspin and all his plans to raise money got shelved. Unitech ended up with debt of over Rs 8,000 crore on its books, though it came down to Rs 5,818 crore by September 2016.

A former Unitech executive says it was Chandra’s vaulting over-ambition that landed the company in a spot. “The market was good at that point and there was nobody to restrain his wish for a meteoric rise,’’ says the executive.

On his part, Chandra set about in earnest to rectify the situation. He put assets up for sale (“We are in the business of selling assets,” he had told Business Standard), scrapped some projects and slashed price tags mercilessly. He opened negotiations with bankers as well as private equity investors to raise money and lobbied the state governments to allow him to build low-cost affordable houses.

And then telecom happened. Unitech Wireless, a subsidiary of Unitech, had got a pan-India telecom licence in early 2008 by paying the government Rs 1,658 crore under the infamous first-come, first-served policy. In October that year, it sold 67.25 per cent to Telenor of Norway for Rs 6,120 crore. This valued the company at Rs 9,100 crore – more than five times the entry fee. As the stake sale happened when the company had no other asset on its books, it was assumed that this was the value of the licence it held.

A subsequent Comptroller & Auditor General (CAG) report blew the lid off the 2G scam, saying the sale of inexpensive spectrum caused the government a loss of up to Rs 1.76 lakh crore, while benefitting private corporations like Unitech. The report also alleged that rules were bent and guidelines overlooked while granting licences, which hinted at collusion between those who got the licences and those who gave the licences.

In the crackdown that followed, a score of politicians, bureaucrats, businessmen and executives were taken into custody – Chandra was amongst them, as Unitech’s telecom foray was being spearheaded by him.

After he was released from prison, Chandra’s energies got focused on fighting court cases and Unitech’s core business of real estate suffered to the point of no return. The two brothers had complemented each other in their functioning before telecom happened — Ajay looked at project execution, while Sanjay focused on finances and investor relations. That rhythm was broken.

Meanwhile, the Unitech share price had gone into a free fall. By December 2012, the Chandras were worth Rs 4,500 crore – an 85 per cent slide from five years ago. In a few short years, they dropped off The Billionaire Club. Unitech’s current share price of a little over Rs 5 is 99 per cent off its peak.

In comparison, DLF has dropped 84 per cent from December 2007 to Rs 154 now. What’s hurting the two companies is the depressed state of the real estate sector for several years now. No big project launches, slow delivery of houses, high inventory and extremely low demand have all added to the misery of the companies. But for Unitech, a lot more has gone wrong, says an executive associated with the company.

Thus, while DLF has been able to make the best of its land bank through rental income (more than Rs 2,500 crore annually), Unitech has failed to tap the revenue source in any significant way. Unitech is still sitting on a large land bank off Sohna Road and other locations but there are no takers at present.

The appeals and litigations related to Unitech’s dealings with lenders such as Deutsche Bank made things worse. Deutsche Bank and some other lenders had sued Unitech about four years ago after its subsidiary Unitech Global defaulted on a $150-million credit facility. Add to that the dispute around Unitech’s non-payment to depositors of its fixed deposit scheme. Last March, the Company Law Board had asked Unitech to pay Rs 30 crore to depositors of the fixed deposit scheme floated by the developer. When the company failed to make the payment, CLB told depositors to take legal recourse. Depositors then moved the National Company Law Board Tribunal.

If earlier, funds flowed from one project to another to keep things moving, now anything from paying employee salaries to servicing debt causes stress for the company. From the days of Unitech being a stable ship when founder Ramesh Chandra was an active boss, it has now turned into a company where nobody knows what tomorrow may bring. While there are company loyalists not wanting to desert the Chandras in trouble, there are hardly any jobs in the market to accommodate the staff looking out: Unitech’s employee count was less than 1,000 as of 2016.

The series of protests and court cases filed by flat owners for prolonged delays in a number of projects from Gurugram to Greater Noida are just the recent triggers for Unitech’s troubles, says a source, including the Chandra brothers being sent to jail.

Even though he promised to meet and talk, Chandra was not available for an interview over the past several months.

Unitech, in a statement, said, “It is submitted that the managing directors of the company have been taken into custody for the delay in the delivery of the project which is due to reasons beyond (the) control of the company and the recession in the real estate sector, and there is no fraud committed with any investor.” The company added that day-to-day operations were fully functional.

Although the company is making efforts to cut its debt and clear the glut of undelivered homes, it may be too late in the day for it to regain its position in the pecking order. Unless the real estate sector makes a magical revival and the Chandras are able to stay out of further trouble.