DLF gears up for promoters’ stake sale in commercial office portfolio

Bengaluru: Investors will closely watch developments related to DLF Ltd’s plan to partly sell its commercial office portfolio in the coming months, after the country’s largest developer struggled to sell homes in the December quarter and land sales masked poor operations.

In a post-earnings conference call with analysts on Wednesday, DLF’s top officials said that details of the transaction will be shared with prospective investors by the end of this month.

A term sheet will be signed by mid-April, another month will be used to do ‘vendor intelligence’, after which the transaction will be presented before the Competition Commission of India (CCI) for approval, which should be obtained by July.

The transaction, which DLF maintains will be a game-changer for the company, involves DLF promoter companies Rajdhani Investments and Agencies Pvt. Ltd, Buland Consultants and Investments Pvt. Ltd and Sidhant Housing and Development Company selling 40% stake in unit DLF Cyber City Developers Ltd (DCCDL) to institutional investors. DLF will continue to hold the remaining stake in DCCDL.

DLF’s rental portfolio has a mix of operational office assets, land with development potential as well as utility and power and maintenance services. The deal is expected to generate about Rs.12,000 crore.

The funds from the stake sale will then be pumped into DLF to cut debt on its residential or development portfolio.

“Around 25 global investors have evinced interest, including pension and sovereign funds who can write a cheque on their own as well as private equity investors who can form a consortium. The transaction is running about one month late, but there is huge demand for ownership of marquee assets,” Saurabh Chawla, senior executive director, finance, at DLF said on the conference call.

On Wednesday, DLF informed the BSE in a regulatory filing that the deadline to convert the promoters’ compulsorily convertible preference shares in DCCDL into equity shares had been extended until March, 2017 (from the earlier given deadline of March, 2016). By then, the transaction is expected to be completed.

DLF posted a 24.6% increase in net profit to Rs.163.95 crore in the December quarter from a year ago.

The developer’s revenue increased by 44.5% to Rs.2,827.66 crore during the period on account of a one-time gain from the sale of land by subsidiary DLF Home Developers Ltd to Singapore’s sovereign wealth fund GIC Pte. Ltd through two joint ventures formed in September.

The revenues were less than most analyst estimates, which had expected the developer to book about Rs.3,900-3,950 crore in revenue, including Rs.1,700 crore from the GIC deal, after stamp duty payment.

“DLF’s net debt fell by Rs.1100 crore quarter-on-quarter to Rs.21,396 crore owing to GIC land sale. However, DLF’s core business continues to remain weak with 9MFY16 pre-sales of just Rs.20,200 crore with Camelias and Crest Gurgaon Phase V projects being the only major sales drivers, and New Gurgaon and rest of India seeing virtually no sales traction,” said a 3 February report by Elara Securities Ltd.

In an analyst presentation, DLF said that the real estate sector outlook continues to be weak.

This unprecedented slowdown in business, particularly for companies operating in the National Capital Region, has also made DLF dependent on the transaction going through successfully.

“The culmination of the transaction will be an important step to create two ‘pure plays’—residential business with zero debt, and an independent commercial business in partnership with long-term institutional investors,” DLF said in the presentation.

On Wednesday, shares of DLF gained 0.16% to Rs.93.50 on the BSE, while the benchmark Sensex lost 1.29% to 24,223.32 points. The BSE Realty Index lost 2.63%.