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DLF promoters sell stake to buy out DE Shaw investment in DAL

DLF promoters sell stake to buy out DE Shaw investment in DAL
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First Published: Thu, May 14 2009. 01 15 AM IST

Book-building: A file photo of a DLF project under construction. DLF promoters have sold 168 million shares at a little over Rs230 apiece. Rajkumar / Mint
Book-building: A file photo of a DLF project under construction. DLF promoters have sold 168 million shares at a little over Rs230 apiece. Rajkumar / Mint
Updated: Thu, May 14 2009. 10 31 AM IST
New Delhi: The promoters of DLF Ltd, India’s largest real estate developer by market value, sold a 9.9% stake in the company for Rs3,860 crore, raising money to buy out hedge fund DE Shaw and Co. LP’s investment in its unit DLF Assets Ltd (DAL), and infuse fresh capital into it.
Book-building: A file photo of a DLF project under construction. DLF promoters have sold 168 million shares at a little over Rs230 apiece. Rajkumar / Mint
The holding of the family of real-estate baron K.P. Singh fell to 78.6% after the sale. In an emailed statement, DLF said some members of the promoter group had sold 168 million shares at a little over Rs230 apiece. The price worked out to a 1.08% discount to DLF’s closing price of Rs232.50 on the Bombay Stock Exchange on Wednesday.
“We are pleased to follow through our commitments with this game changing transaction for the company and thank the investor community for their continued confidence in DLF,” Rajiv Singh, vice-chairman of DLF, said in a statement.
The promoters sold the stake at a time when a slowdown in India’s economy has depressed the real estate market.
Home prices may have dropped by as much as 40% across India in the quarter ended March, according to estimates by real estate consultancy Jones Lang LaSalle.
“You’d appreciate that this was a painful and sentimental decision,” Rajiv Singh said in an interview on CNBC-TV18 television channel. “DLF would have preferred to sell shares when the world was more normal.”
Deutsche Bank AG and JPMorgan India Pvt. Ltd executed the share sale, whose proceeds will be used by the promoters to raise their stake in DAL by acquiring DE Shaw’s shares in the unit. The promoters also plan to infuse capital, directly or indirectly, into DAL.
The share sale attracted significant demand from large existing institutional shareholders and several high quality new accounts using the opportunity to become core investors in DLF.
“It’s positive for the company and will help it reduce debt and liquidity problems,” said U.P. Bhat, who helps manage $1.6 billion (around Rs7,940 crore) at Canara Robeco Asset Management Ltd in Mumbai. “It’ll also restore confidence of banks to lend them more and trigger a positive cycle.”
The accelerated book-building route was decided very recently and executed in a short period of time, said Sanjay Sharma, managing director and head of equity capital markets at Deutsche Equities India Pvt. Ltd. “Looking at yesterday’s (Tuesday) closing price, which was Rs236.25, we decided that investors could be offered a price range of between Rs223 and Rs230,” he said, adding that most of the buyers indicated interest to buy at Rs230.
“When the volatility was very high, investors were unwilling to put their money to work. Now, that has changed. They are willing to put money if they understand it is good for the company. Investors are focused on large stocks,” said Vedika Bhandarkar, managing director and head of investment banking at JPMorgan India.
Bhandarkar expects more such transactions to take place. “I think more such issues are likely. Since January, 2008, there have hardly been any capital issues. There are different companies in India who need to raise money for different reasons.”
DAL buys and holds completed commercial assets of DLF, which has so far handed over 5.1 million sq. ft of leased space to the unit. Under an agreement, DLF has to deliver 13-14 million sq. ft of leased space to DAL. The unit owes DLF around Rs5,500 crore as payment for the properties it had bought from DLF.
“The monies infused into DAL would be used by it to pay to DLF towards its contractual obligations,” the company statement said.
DAL has received $1.15 billion, including $450 million from Symphony Capital Partners, $400 million from DE Shaw and $200 million from Lehman Brothers Holdings Inc. over the last two years. In November last year, Symphony acquired Lehman’s stake in DAL after Lehman collapsed in mid-September.
While the proceeds of the share sale will not entirely take care of DLF’s receivables from DAL, the promoter-owned firm can pay the developer with money that it plans to raise through the lease rental discounting method, which helps a company raise funds against expected future rentals.
In its fourth quarter presentation, DLF had said that the company expects around Rs2,000 crore from DAL through the lease rental discounting.
Sumit Sharma and Pooja Thakur of Bloomberg and Sanat Vallikapen contributed to this story.
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First Published: Thu, May 14 2009. 01 15 AM IST