DLF promoters to sell stake in rental arm to GIC affiliate
BENGALURU: India’s largest property developer DLF Ltd’s audit committee has approved a transaction by which the promote rs will sell their stake in its rental arm DLF Cyber City Developers Ltd (DCCDL) to Reco Diamond, an affiliate of GIC Real Estate, Singapore, for a gross value of ₹11,900 cr ore, the company said in a BSE filing on Friday evening.
The transaction implies an enterprise value of ₹35,617 crore for DCCDL, translating into an equity value of around ₹30,200 cr ore. After the completion of certain procedures, DLF will hold 66.66% equity shares and Reco Diamond 33.34% in DCCDL.
In March, DLF had said that its promoter firms Rajdhani Investments and Agencies Pvt Ltd, Bu land Consultants and Investments Pvt. Ltd and Sidhant Hou sing and Development Co were in exclusive talks with Singapore’s sovereign fund GIC Pte Ltd to sell 40% stake in DCCDL, in a‘ gamechanger’ deal that would help the developer 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 ₹11,900 crore approximately, which includes secondary sale of equity shares( post conversion of CC PS) to Re co Diamond for ₹8,900 crore approximately and two buybacks of CC PS by DC CD L for ₹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 DC CD L, resulting in an efficient capital structure,” it added.
JP 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 ₹3,000 cr ore in 2017-18, of which about ₹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 its 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 ₹2,500 crore, subject to approval of shareholders, on Friday.
Amidst the prolonged slowdown in the real estate sector, which has impacted the 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 in August. Its net debt rose by around ₹802 crore to ₹25,898 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 ₹3,778 crore.
The promoters infusing the sale proceeds into DLF and a subsequent equity-raise 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 ₹750 crore per quarter to continue for next 2-3 quarters,” DLF said in the presentation.
DLF posted a 58% drop in net profit to ₹109.01 cr ore in the April-June quarter while its revenue rose 9% to ₹2,211.24 cr ore from the year-ago quarter.