DLF’s shares tanked over 28% Tuesday, a day after the market regulator barred India’s biggest realtor from selling shares for three years, triggering concerns about its ability to fund projects and repay loans.
Analysts said the Securities Exchange Board of India’s (SEBI’s) Monday ruling could force DLF to lower property prices, leading to an overall correction in the National Capital Region given the company’s market leadership in the region, analysts said.
“We expect this capital-market ban to result in a meaningful price correction as DLF liquidates unsold inventory in its completed projects to generate operating cash flows,” Ambit, a brokerage firm, said in a research report.
The company, credited with building Gurgaon, commands nearly 60% market share in the glitzy Millennium City that borders the Capital.
“If it ends up selling land and development projects and ongoing projects at a discounted rate, it will have an impact on the overall real estate-market sentiment,” said a real estate consultant, who did not wish to be identified.
“DLF’s inability to access capital markets could impact its fund-raising programme,” Macquarie research said. “DLF, in this case, would have to resort to large asset sales to reduce debt in the future.”
Buyers are worried, too. “We see our projects in danger now. We doubt that they will be completed on time. People who have invested all their savings in these projects are anxious now,” said Sanjay Jain, secretary of the Capital Greens Flat Buyers Association, a DLF residential project in Moti Nagar, New Delhi.
DLF had failed to meet the 2012 deadline for the handover of flats that were still incomplete, Jain said. They are now planning to take the company to court.
DLF is India’s most indebted property developer. As of June 30, its borrowings stood at Rs 19,064 crore, higher than the market value of Rs 18,701.33 crore.
The SEBI blow wiped Rs 6,000 crore off its value Tuesday when its stock plunged 28.5 % to Rs 104.15.
The company might need to dig deep into its commercial properties put out on rent, analysts said. “The only saving grace in its portfolio are assets that earn annual rentals of more than Rs 2,100 crore. It can always — in the worst case scenario — sell these income-producing assets to generate more than Rs 20,000 crore which is equal to their total debt,” said another consultant on condition of anonymity.
SEBI has barred the company and six top executives, including promoter-chairman KP Singh, from accessing the securities market, choking its options to raise fresh funds.
The move came after seven years of investigation into the charges that the realtor didn’t give complete information when it went public in 2007.
In recent years, DLF has faced a welter of problems including angry lawsuits by customers upset with project delays and political controversies surrounding its alleged links with Robert Vadra, son-in-law of Congress president Sonia Gandhi.
DLF has promised to “defend itself to the fullest extent” against the accusations and said it was “confident of the vindication of its stand”.