DLF promoters to sell 40 per cent stake in rental arm

DLF promoters KP Singh family will sell their 40 per cent stake in the company’s rental arm DLF Cyber City Developers for an estimated Rs 14,000 crore to institutional investors.
The promoters will re-invest a significant part of the amount realised from the sale in DLF Ltd.

The decision was taken by the DLF’s board of directors in its meeting held here today based on the recommendation by the audit committee, which was set up last year to suggest ways to drive the growth of rental business.
According to market sources, the valuation of promoters’ 40 per stake in DLF Cyber City Developers Ltd (DCCDL) could be around Rs 12,000-14,000 crore.

In late 2009, DLF had announced merger of its subsidiary DCCDL with promoters’ firm Caraf Builders and Constructions.

DCCDL had then issued CCPS (compulsorily convertible preference shares) worth Rs 1,597 crore to promoters. Post conversion, promoters would have 40 per cent stake in DCCDL, which holds bulk of the DLF s commercial assets.
“With this proposed transaction, DLF will be able to achieve three of its main objectives – removal of conflict of interest, creation of a rental platform with large financial investors and reducing substantial portion of debt. It’s killing three birds with one stone,” DLF Senior Executive Director Finance Saurav Chawla told PTI.

DLF would be able to create REITs in the capital market in partnership with the long term financial investors, he added.

The promoters stake in DLF, which stands at 75 per cent, could increase post this investment, sources said.
To resolve the issue of CCPS held by promoters in DCCDL DLF in a filing to the BSE said that the board approved the recommendations made by the audit committee to sell promoters’ stake in DCCDL to institutional investors.
The filing did not give any valuation of the promoters’ equity stake in DCCDL.

“The audit committee today evaluated several options available to the company to reduce the conflict of interest with the CCPS Holders in relation to the rental business and after deliberations, recommended to the Board to consider the proposal that CCPS Holders sell the CCPS to unrelated third party institutional investor(s),” DLF said.

The panel suggested DLF to finalise the strategic terms of transaction including selection of third party institutional investor(s) and also oversee and facilitate the transaction, in consultation with promoters.
It also recommended DLF to appoint bankers, transaction advisors, tax and legal advisors etc to assist in the transaction.

Promoters should invest back in the company, a substantial amount (net of taxes/other charges) of the consideration received from the sale of CCPS, the panel said.

“After deliberation and upon the CCPS holders conveying their consent, the Board accorded its approval for the transaction. Upon completion of the proposed transaction, the company will continue to hold 60 per cent equity interest in DCCDL, on a fully diluted basis,” the filing said.

India’s largest realty firm earns an annual rental income of Rs 2,400 crore by leasing its commercial properties, including office and shopping malls comprising 30 million square feet of area.

As promoters stake could increase post re-investment of amount realised from proposed sale of their 40 per stake in DCCDL, DLF said it would take required steps to adhere to the minimum public shareholding requirements of 25 per cent.

Investment by the promoters in DLF would help the realty major to reduce its debt, which stood at Rs 21,600 crore at the end of the first quarter of this fiscal.
DLF’s promoters in March this year decided to defer till March next year conversion of CCPS into equity shares and also slashed the coupon rate from 9 per cent to 0.01 per cent. The deadline to convert CCPS into shares was 19 March this year.
The Board authorised the audit committee to finalise strategic terms of proposed transaction including selection of institutional investors in consultation with CCPS Holders, to finalise the transaction documents and also to facilitate the transaction, the filing said.

With real estate market facing huge slowdown from last 2-3 years, DLF has been selling its non-core assets to boost its cash flow and reduce debt.

The company has exited from hotel, insurance, wind power and cinema businesses besides selling non-core land parcels.

It has raised more than Rs 10,000 crore through this process.
Recently, the company sold about 50 per cent stake in its housing project at central Delhi for about Rs 2,000 crore.

DLF has a land bank of nearly 300 million square feet, of which about 50 million square feet is under construction.