Unitech Ltd. (507878.BY), which raised $575 million via a share sale to institutions, is expected to trim its net debt to INR40 billion by the end of March, a person with direct knowledge of the matter said Monday.

Cash flows from the recent sale of assets such as hotels and residential apartments will also help reduce the property developer's net debt, the person, who asked not to be named, told Dow Jones Newswires.

Higher loan rates, lofty property prices and fears of job losses in a slowing market have hit realty sales in Asia's third-biggest economy. The slowdown has squeezed cash flows for Unitech and other realty companies, forcing them to raise funds through private placement of shares as well as the sale of non-core assets such as hotels and school plots.

"There was a tremendous response to the second QIP (qualified institutional placement)," the person said. "The total FII (foreign institutional investors) demand was 96% and only 4% was domestic companies and mutual funds."

IDFC-SSKI Ltd., UBS Securities India Pvt. Ltd., Morgan Stanley India Company Pvt. Ltd. and Credit Suisse Securities (India) Pvt. Ltd. were the joint global coordinators and bookrunners to the issue.

Friday's share sale was Unitech's second after one in April, when the company raised INR16.21 billion by selling shares to institutional investors, including HSBC Holdings PLC, Prudential PLC and Singapore's Orient Global.

Unitech issued 340 million new shares to the institutions at INR81 a piece, the person said.

The share sale and cash flow from the recent sale of assets will likely lower Unitech's net debt to INR50 billion in July, the person said. Unitech's current gross debt is INR78 billion.

Unitech is expected to receive INR7 billion-INR8 billion in the next two-three months from the assets it sold recently, the person said, adding that proceeds from the sale of shares and assets will likely reduce the company's debt/equity ratio to about 0.52:1 by the end of March.

The share sale lifted shares of Unitech, which closed 3.6% higher to INR85.30 on the Bombay Stock Exchange, compared with the benchmark index, which remained flat.

"With this capital infusion, we believe UT has more or less overcome its balance sheet pressure and will enjoy flexibility to scale-up execution," Sameer Baisiwala and Arunabh Chaudhari, Mumbai-based analysts at Morgan Stanley, said in a note.

Morgan raised Unitech's rating to overweight, citing reducing debt levels and improving prospects for the residential sector.

A total of 40 investors took part in the latest share issue, the person said.

It included Halbis, a unit of HSBC Global Asset Management, Mirae Asset Financial Group, Prudential PLC, D.E. Shaw, investment guru George Soros and DWS Investments, the mutual fund arm of Deutsche Asset Management, he said.

Other large investors were TPG Inc., Nomura Holdings Inc., Farallon Capital Management LLC, Sansar Capital Management LLC, Sandstone Capital LLC, Amiya Capital LLP and Duquesne Capital Management, the person added.

The share sale will reduce the founders' stake in Unitech to 43% from 51% now, the person said, adding that the stake will increase after a conversion of warrants by the founders.

Later in the day, Unitech said in a statement to the Bombay Stock Exchange that a committee of directors allotted 227.5 million convertible warrants to one of its founders, Harsil Projects Pvt. Ltd.

Harsil will subscribe to the warrants that are convertible into an equal number of equity shares at INR50.75 apiece within 18 months.

Unitech sold more than 4,000 residential apartments totaling nearly 4.5 million square feet in the past three months, the person said, adding that the company is proceeding on schedule to achieve its targeted sales of 20 million square feet for the fiscal year ending March 31, 2010.

-By Santanu Choudhury, Dow Jones Newswires: +91-11-4356-3305; santanu.choudhury@dowjones.com