DLF Ltd, India’s largest real estate developer by market value, said an affiliated firm DLF Assets Ltd received $450 million (Rs1,831.5 crore) worth of funding from a London-based investment firm, Symphony Capital, so it could partly pay up the money it owed DLF, as a proposed overseas listing to raise money seems to have been delayed.
While DLF Assets has paid up the bulk of the money it owes DLF for the year gone by, it still owes Rs1,900 crore, said Saurabh Chawla, senior vice-president for finance at DLF. A large portion of DLF’s properties, all commercial, were sold to DLF Assets last year, just before DLF went public.
DLF Assets needs to urgently get a proposed listing underway as a real estate investment trust (Reit) in Singapore, to pay DLF. However, the listing has been delayed after a global market slowdown turned new share offers less attractive and investors started fleeing real estate companies because the crisis was linked to falling home values and irrecoverable home loans in the US, the largest economy.
The terms of DLF Asset’s sale to Symphony were not given but Ramesh Sanka, DLF’s chief financial officer, said it would be an “IPO (initial public offer) linked payment”. Often, private equity players invest in a company that is preparing to sell shares to the public and peg their purchase price of the shares to price at which the offer is made to the public.
“A lot of it is structured. I think from what we understand DLF has guaranteed certain kinds of returns to Symphony as debt or equity. The downside for Symphony is protected. The transaction is structured as debt but if things go as planned it can be converted into equity,” said an analyst from a brokerage firm, who asked not to be named because he is not allowed to talk with media.
Sales to DLF Assets, owned by the same promoters as DLF, accounted for 40% of DLF’s profit in the year ended March through the arrangement where DLF sells the bulk of its commercial properties to DLF Assets. DLF Assets bought Rs5,345 crore of properties from the New Delhi-based developer in that period, according to an investor presentation on the company website.
Reits, such the proposed DLF Asset one, use money from investors to purchase and manage property. They are traded on major exchanges, just like shares. Much of the income from the properties owned by Reits is shared among its investors. India has not yet introduced legislation to support Reits.
In the past, DLF Assets has received $200 million from a fund sponsored by Lehman Brothers and $400 million from another global investment firm DE Shaw, and all the three rounds of funding is what has enabled DLF Assets to pay up its dues to DLF.
So far, DLF Assets has received $1.15 billion of funding from three foreign players.
DLF, with its headquarters in the heart of Delhi, in an earnings conference call two days after its results announcement, said it expects to spend Rs9,000 crore in the year ending in March 2009, to buy up land (Rs3,000 crore) and for construction (Rs6,000 crore). Rajiv Singh, its vice-chairman, said DLF hopes to fund this expenditure using the Rs7,000 crore of dues from DLF Assets and other customers.
Singh, replying to repeated questions from analysts, said DLF Assets had sold back Rs1,500 crore of properties to DLF in the last quarter ended March 2008. DLF had booked a profit of Rs850 crore before tax on the transaction when it sold the property to the affiliate—an amount it has now written back. The properties were part of DLF Cybercity, a wholly owned subsidiary.
DLF has sold 20 mn sq. ft of office space to DLF Assets, both completed office space and on-going construction projects, and around one-third of the transactions were completed, said Singh. The firm, which listed its shares last July, said sales to DLF Assets would come down to one-fourth of DLF’s revenue in the coming years, because other lines of business would pick up, without elaborating.