Shares of real estate companies DB Realty and Unitech tanked on Thursday after the Supreme Court scrapped 122 second-generation (2G) licences granted to companies in 2008. Experts, however, justified these companies’ diversification into telecom, one of India’s fastest growing sector. Property consultants said the SC order will not impact these realty companies’ credit ratings and future options to raise capital as the two businesses were “not overlapping”.
Cash-rich real estate developers diversified into mobile telephony as licences were cheap and data-driven 3G services could throw up more cash. Also, they they could hawk their stake to overseas partners for profit.
?Telecom’s immense potential was an opportunity for DB and Unitech to diversify their business,? says Rajiv Sahni, partner, real estate & hospitality at audit & consulting firm Ernst & Young. ?Strategy-wise, entering telecom was a great thing to do as no other sector was expanding the way it did.?
DB Realty, which partnered West Asian telecommunications giant Emirates Telecommunications (Etisalat), to roll out telecom services, slumped over 5% in intra-day trade as 15 licences of Etisalat DB Telecom, the joint venture company, were scrapped. DB shares, however, recovered and ended the day losing 0.48% on the BSE.
Unitech’s shares were down 14% during the day. The company partnered Norwegian telecom major Telenor Group to set up Uninor in 2009. Its shares also recovered and closed 7.04% down on the BSE.
“The SC ruling will have no bearing on the financials of the company as it has no direct or indirect shareholding in Etisalat DB,” said a DB Reallty spokesperson. ?The promoters of DB Realty, in their individual capacity, invested in Etisalat DB, a company engaged in telecom business. Both entities are separate and have nothing to do with each other,? added the spokesperson.
Unitech could not be reached for comment.
While the stock markets witnessed a knee-jerk reaction from investors, real estate experts and property consultants see no long-term damage to the reputation and market standing of either DB Realty or Unitech.
?Shareholders are known to panic when news like this hits them,? says Ghulam Zia, national director, research and advisory services, Knight Frank India, a global property consultancy. ?There are very few interlinks between the real estate companies and their telecom ventures, which the investors will realise in due course of time.?
?I don’t think the scrapping of 2G licences will bring down DB’s or Unitech’s credit-rating or make it difficult for them to raise funds for future projects,? says Sahni of E&Y.