In an apparent attempt to raise funds amidst staggering demand, a rising debt burden and an overall slump in their business, the promoters of the country’s largest real estate company DLF Ltd on Wednesday sold 10 per cent of their holdings in the firm to infuse capital in DLF Assets Limited (DAL), a property leasing arm separately controlled by the same promoters.
The cash infusion will yield Rs. 3,860 crore for the promoters, whose ambitious plans got hit last year when the local real estate business felt the pinch of the global financial meltdown. The buyers are DLF’s large institutional shareholders, but the company did not disclose details. Leading stakeholders include HSBC and Fidelity.
DAL buys properties built by DLF and then leases it out for rental income. Its business has been hurt by weak demand. Its revenues dropped to Rs 322 crore in the January-March quarter from Rs 1,845 crore a year ago. The new cash will be used to meet DAL’s obligations.
“The promoters may also use part of the net proceeds towards the purchase of DE Shaw’s (private equity) interest in DAL,” DLF said in a statement. “This transaction will put investor concerns regarding DAL liquidity to rest, as well as reduce the net exposure to DAL in DLF’s books.”
DLF may even consider merging DAL with itself at a later stage, company’s vice-chairman, Rajiv Singh said on television. “It could be a merger at a subsidiary level and 100 per cent purchase is also an option,” he said. DAL’s valuation is estimated between Rs 6,600 crore to Rs 7,000 crore, investment banking sources told Hindustan Times.
Experts tracking the sector see the stake sale as a significant but limited solution to DLF’s liquidity problems as the company creaks under debt that stood at Rs 13,958 crore on March 31.
“I expect the company restructuring would go on for another year or two,” said a senior real estate executive at a global consulting firm.