DLF sells 33% of rental arm to GIC for Rs 11,900 crore

In one of the biggest real estate deals in the country, the board of directors of leading developer DLF has approved a 33.34 per cent stake sale in its rental arm — DLF Cyber City Developers Ltd (DCCDL) — for Rs 11,900 crore to an affiliate of Singapore’s GIC. The deal pegs the value of DCCDL at Rs 35,617 crore, the company declared in a BSE filing late on Friday evening.

In March, DLF had almost finalised a transaction to sell 40 per cent in the rental subsidiary for an estimated Rs 13,000 crore to the GIC affiliate. However, after weeks of deliberation leading up to a long board meeting on Friday, a decision was taken to sell a lower stake.

“The transaction implies an enterprise value of Rs 35,617 crore for DCCDL, translating into an equity value of Rs 30,200 crore approximately. Post completion of series of steps as contemplated in the transaction, DLF shall hold 66.66 per cent equity shares, up from 60 per cent on a fully diluted basis earlier and Reco Diamond, an affiliate of GIC Real Estate, Singapore, shall hold 33.34 per cent equity shares in DCCDL,” the company said in its filing.

Promoters K P Singh and family would sell a 33.34 per cent stake in DCCDL to GIC for Rs 8,900 crore. The remaining shares would be bought back by DCCDL for Rs 3,000 crore. The promoters are expected to get net proceeds of over Rs 10,000 crore after tax and a substantial part of this amount will be invested in DLF for debt repayment.

GIC would now move the Competition Commission of India (CCI) for approval while DLF would approach shareholders for a go ahead. This is the second investment by Singapore’s sovereign wealth fund GIC in DLF. In September 2015, GIC had invested about Rs 2,000 crore in DLF’s two housing projects. According to the BSE filing, the deal includes the secondary sale of equity shares, post conversion of cumulative convertible preference shares (CCPS) to Reco Diamond for Rs 8,900 crore and two buybacks of CCPS by DCCDL for Rs 3,000 crore, out of which one buyback shall be before closing and another 12 months later.

The company made it clear that the transaction has been structured in a way to make best use of the surplus cash in DCCDL resulting in an efficient capital structure. According to the real estate major, the transaction shall create one of the leading platform play for rental properties, with rent yielding assets of almost 26.9 million square feet.

“The portfolio, currently, has an under development pipeline of approximately 2.5 million square feet with further development potential of approximately 19 million square feet within the portfolio,” the company said.

While around 25 companies were in the fray when talks began to find a prospective buyer in April 2016, the race had eventually narrowed down to GIC and American private equity firm Blackstone.

DLF has about 30 million square feet of commercial area with an annual rent of about Rs 2,700 crore and out of that, DCCDL holds about 22 million sq ft of commercial space.

Triggered by enforcement of Real Estate Regulation Act (RERA) and later goods and services tax (GST), DLF reported a decline of 58 per cent in its consolidated net profit at Rs 109.01 crore for the quarter ended June.

According to industry experts, the deal will give DLF a partner to expand its commercial renting business. It will also help the developer restructure its balance sheet and also reduce debt. The company's consolidated net debt stood at Rs 25,898 crore at the end of June quarter.

DLF will start receiving the proceeds from the stake sale in its rental arm in October once the deal concludes.