New Delhi: DLF Ltd, India’s largest publicly traded real estate company, is still owed Rs3,382 crore by DLF Assets Pvt. Ltd, an affiliate to which it sells developed commercial property. DLF Assets has indefinitely postponed an overseas listing amid global stock market volatility, and it isn’t clear how and when the company will raise the money.
“We are working on DLF Assets raising money,” said DLF Ltd’s group chief financial officer Ramesh Sanka. “This will include investment from private equity (PE) firms. We hope to close it this calender year.” Sanka declined to give further details, but said that in the quarter ended June, DLF received Rs111 crore as payment for some properties it had sold to DLF Assets and that it was still owed Rs3,382 crore by the affiliate.
DLF derives a substantial part of its revenue by selling commercial property to DLF Assets, and the delayed payment is a concern, said Shailesh Kanani, an analyst at Mumbai-based Angel Broking Ltd.
“The Rs3,000 odd crore the promoter-owned firm owes to DLF is a huge amount,” Kanani said. “The problem is that DLF Assets is not able to generate money unless it goes for an overseas listing as planned. If the listing goes for a toss, investors will also be stuck.”
Analysts also continue to be concerned that a large portion of DLF’s profit continues to be driven by sales to DLF Assets. “We don’t know the balance sheet of DLF Assets,” Kanani said. “We just have to go with whatever numbers DLF gives.”
The company’s shares closed at Rs520.15 each on the Bombay Stock Exchange on Friday, 0.92% lower than the issue price of Rs525 and 57.53% lower than the peak of Rs1,225 seen on 15 January.
Since January this year, the exchange’s benchmark Sensex index has fallen 27.80%, but its realty index plunged 60.12%, as a 13-year high inflation prompted the Reserve Bank of India to raise interest rates. Demand for apartments and houses has slowed as consumers, deterred by more expensive?credit, deferred?purchases.
DLF sold around Rs1,557 crore worth of properties to DLF Assets in the quarter ended June. The sales are part of a business model in which the company monetizes its assets by selling them to the affiliate, also owned by the family of chairman K.P. Singh.
Since its founding, DLF Assets had bought assets worth Rs7,500 crore from DLF as of the year ended March. In the same period, it paid DLF Rs4,338 crore for these assets. Some of that money came from the sale of stakes in DLF Assets to foreign funds. The Singh family also infused an additional equity of Rs50 crore into DLF Assets and gave the company an interest-free loan of Rs1,150 crore for an indefinite period.
DLF’s founders had to step in and lend money to DLF Assets as the company’s plans for an overseas listing were postponed.
DLF Assets had planned an initial public offering on the Singapore Stock Exchange through DLF Offices Trust, the real estate investment trust of DLF Assets.
DLF Offices Trust holds some of the office properties belonging to DLF Assets. Neither DLF Ltd nor DLF Assets have said how many office properties are held by this trust. A real estate investment trust is a tax efficient fund that buys real estate assets and shares its rental earnings with shareholders.
DLF, which sold its shares to the public last July, booked a large portion of its sales and profit by selling office properties to DLF Assets. It had been counting on DLF Assets to list its office trust in Singapore to pay for these properties.
Meanwhile, DLF Assets managed to raise $1.15 billion (Rs4,876 crore today) from three investors through PE placements, the latest being $450 million from London-based Symphony Capital Llc., which was issued convertible preference shares, whose conversion price will be pegged to the issue price of DLF Office Trust in Singapore.