Real estate major DLF on Wednesday said it is looking to raise resources through a QIP (qualified institutional placement), and at the same time issue warrants or compulsorily convertible preference shares (CCPS) to promoters. Analysts said warrants and CCPS were being issued to ensure the stake of the promoters does not get too diluted. Currently, the promoters own close to 75%, the minimum float required for a company to stay listed is 25%. The board of DLF will meet on December 1 to the discuss the proposed capital infusion, the company said in a release to the stock exchanges. In August, GIC had acquired a 33.34% stake in DLF’s rental arm DLF Cyber City Developers (DCCDL) for Rs 11,900 crore. Following the conclusion of the transaction, among the biggest FDI deals in the real estate space, DLF had indicated that the promoters would invest Rs 10,000 crore (post tax) as fresh equity infusion and use it primarily to reduce debt. DLF had also said it would raise Rs 3,000 crore through an institutional placement in order to adhere to the Sebi guidelines which mandates promoters of public companies to hold a maximum of 75%. The CCI (Competition Commission of India) has approved the deal. Analysts at ICICI Securities noted in a recent report that the company has been grappling with twin problems of sluggish residential sales in a weak NCR (National Capital Region) market, coupled with high debt over the past three years, which has led to a quarterly cash burn of Rs 700 crore to Rs 800 crore.
However, they observed that the silver lining has been the company’s rental asset portfolio which has exhibited a strong recovery on the back of a sustained improvement in India’s office market over the same period with falling vacancies, cap rates falling to 7-8% from 11-12% and rentals going up by 50%. “As a result, DLF will have total annuity income of Rs 3000 crore in FY18,” they observed. At the end of September, DLF’s debt stood at close to Rs 26,000 crore, according to Bloomberg. Analysts estimate there is potential for the company’s borrowings to fall by about Rs 13,000 crore following the capital infusion. Saurabh Chawla, EVP (finance) had said at the time of the transaction that the objective was to pare debt in the parent company, de-leveraging it significantly.
The last time DLF’s debt was in the range of Rs 13,000 crore was in 2008, according to Bloomberg. Consolidated revenue in H1FY18 stood at `3,962 crore, compared with Rs 4,251 crore in H1FY17. The consolidated PAT was Rs 131 crore, compared with `461 crore. However, the DLF stock has risen 43% since August post the GIC deal. DLF, analysts at ICICI Securities say, has close to 5.6msf of ready inventory worth Rs 15000-16,000 crore to sell across projects over the next three-four years. “While we acknowledge that a residential market recovery in the NCR is still 12-18 months away, DLF’s high quality land bank in Gurugram should enable it to cash in on a recovery,” they said.
After halting sales for seven months, DLF has re-opened bookings for two housing projects — Crest and Camillas in Gurgaon — in November . Group CFO Ashok Tyagi said the company took a hiatus from sales to adjust to the implementation of RERA, but continued construction at the cost of cash burn and negative cash flows. According to the company’s earnings presentation, the operating cash deficit is estimated at Rs 750 crore per quarter.
With the conclusion of this transaction, DLF joins the likes of the few pedigree commercial players such as K Raheja Corporation, Embassy and Prestige Estates — companies that have attracted institutional funding and also regrouped assets so that commercial and residential pieces can be run as individual entities. In the past three to four years, institutional funds have been on the prowl, targeting companies that have a portfolio of Grade A quality income-generating assets that assure a steady stream of income. Companies such as Embassy Developers, K Raheja Corp, Phoenix Mills and RMZ have joined hands with the likes of Blackstone, CPPIB and QIA. GIC has negotiated some of these deals, but finally sealed it with DLF.