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DLF promoters to sell rental arm stake for nearly Rs12,000 crore to GIC

LiveMint logoLiveMint 25-08-2017 Madhurima Nandy

New Delhi: India’s largest property developer DLF Ltd’s audit committee has approved a transaction by which its promoters will sell their stake in its rental arm DLF Cyber City Developers Ltd (DCDDL) to Reco Diamond, an affiliate of GIC Real Estate, Singapore, for a gross value of Rs 11,900 crore, the company said in a BSE filing on Friday evening.

The transaction implies an enterprise value of Rs. 35,617 crore for DCCDL, translating into equity value of around Rs. 30,200 crore. After the completion of certain procedures, DLF shall hold 66.66% equity shares and Reco Diamond the remaining 33.34% in DCCDL.

In March, DLF had said that its promoter firms Rajdhani Investments and Agencies Pvt. Ltd, Buland Consultants and Investments Pvt. Ltd and Sidhant Housing and Development Co. were in exclusive talks with Singapore sovereign fund GIC Pte Ltd to sell 40% stake in DLF Cyber City Developers Ltd (DCDDL), a ‘game-changer’ deal that would help the developer significantly reduce its debt.

With the transaction, DLF promoters will convert its compulsorily convertible preference shares (CCPS) in subsidiary DCCDL into equity shares and sell them to the GIC affiliate.

“The gross proceeds to the sellers from the transaction would be Rs. 11,900 crore approximately, which includes secondary sale of equity shares (post conversion of CCPS) to Reco Diamond for Rs 8,900 crore approximately and two buybacks of CCPS by DCCDL for Rs 3,000 crore – out of which one buyback shall be before closing and one shall be 12 months thereafter,” DLF said on Friday. “The transaction has been structured to make best use of the surplus cash in DCCDL, resulting in an efficient capital structure.”

J P Morgan and Morgan Stanley were joint financial advisors to DLF, while EY was the transaction advisor.

DLF is expected to achieve a rental income of over Rs 3,000 crore in the current fiscal, of which about Rs 2,600 crore pertains to DCCDL. The rental assets arm has an operational 26.9 million sq. ft of leased-out space and an under-development pipeline of about 2.5 million sq ft with further development potential of about 19 million sq ft within the portfolio.

This is the second time that DLF and GIC will partner after DLF Home Developers Ltd, a unit of DLF, and GIC entered into a joint venture to invest in two upcoming projects in central Delhi in September 2015.

DLF’s board also approved raising debt of up to Rs 2,500 crore, subject to the approval of shareholders, on Friday.

Amidst the prolonged slowdown in the real estate sector, which has impacted the Delhi-National Capital Region (NCR) the most, DLF continued to burn cash on construction spending amid weak home sales in the April-June quarter and anticipates a temporary spike in its net debt level, it said in a presentation to analysts late //earlier?//in August. Its net debt rose by around Rs802 crore to Rs25,898 crore in the fiscal first quarter compared to the preceding three months.

In the last one year, DLF’s net debt has risen by almost Rs3,778 crore.

With the promoters infusing the sale proceeds into DLF and a subsequent equity raising, will help ease concerns about the company’s debt.

“Almost zero incremental sales coupled with outflow for construction activities to accelerate project completions continued to burn cash during the quarter. Operating cash deficit of Rs750 crore per quarter to continue for next 2-3 quarters,” the developer said in the presentation.

DLF posted a 58% drop in net profit to Rs109.01 crore in the April-June quarter while its revenue rose marginally by 9% to Rs2,211.24 crore from the year-ago quarter.

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