The severe correction on the realty counters in the recent past has affected the pricing of the DLF Universal initial public offering. India's largest real estate company has set the price band for its proposed IPO between Rs. 500 and Rs. 550, against expectations of Rs. 600.
At the upper end of the new price band, the company's market capitalisation will be Rs. 93,500 crore ($23 billion), far below earlier projections. DLF was originally looking at entering at a price such that its market capitalisation should be over Rs. 1,00,000 crore.
At the price band set DLF can mop between Rs. 8,750 crore and Rs. 9,625 crore. The company is issuing 175 million shares of Rs. 2 each amounting to 10.2 per cent of the enhanced paid-up capital. The issue will open on June 11 and close on June 14.
DLF Chairman KP Singh and his family, the company’s promoters, who were originally planning to divest around 1 per cent of their own holding through an offer for sale have deferred their plan. The company is also not providing a greenshoe option. In the first draft prospectus filed in May 2006, DLF had offered 202 million shares with a greenshoe option of another 17 million.
Under guidelines set by the Securities and Exchange Board of India, DLF could not have arrived at a price band below Rs. 500, since the face value of its shares is Rs. 2. Company executives said the price band had been made very attractive for investors. “We are looking for a long-term relationship with investors and they should be allowed to participate in the growth story,” he added.
However, even at this price, KP Singh will be among the richest Indians because he will continue to own around 87.5 per cent of DLF, valued at around Rs. 81,812 crore ($20 billion). In addition to the float size of 10.2 per cent, the company has allotted 1 per cent of the equity for employees’ stock options. Minority shareholders hold another 1.5 per cent.
Interestingly, since May 7, when the SEBI cleared DLF’s IPO, other real estate stocks have rallied. He scrip of Unitech, the country’s second biggest real estate company, climbed over 30 per cent to Rs. 551 on Thursday from Rs. 423 on May 7. At this price Unitech’s market capitalisation is around Rs. 45,000 crore.