DLF Ltd, the Delhi-based developer that is set to make an initial public offering (IPO), will likely price its shares between Rs550 and Rs600, helping it raise as much as Rs10,500 crore, in India’s biggest domestic share sale.
This price band has been recommended by the company’s bankers, said people close to the development within DLF who did not wish to be named. The company, however, has yet to sign off on it. Bankers close to the transaction corroborated this, on condition of anonymity.
DLF’s attempt to raise money from the markets, its second within a year, will likely face stiff competition from ICICI Bank Ltd, which is also planning an issue that could raise almost twice what DLF plans, selling shares to both domestic and overseas buyers. DLF plans to offer 175 million shares to investors. K.P. Singh, 75, and his family who control about 90% of the company, may emerge as the richest Indians in the country based on the value of their holdings at this price, toppling Reliance Industries’ Mukesh Ambani.
“There has been a lot of hype built around this issue,” Mukesh Agarwal, a manager at HDFC Securities, said. “But I do not think the IPO will get a great response. People are not very comfortable about investing in DLF. There are other big IPOs lined up too. And I think people will prefer to subscribe to those IPOs than DLF since real-estate stocks have not been performing well,” he added.
Real-estate companies have received their share of bad news this year. Rising interest rates have reduced consumer appetite for home buying. The central bank has asked lenders to go slow on giving loans to developers. The government has tightened rules on overseas borrowings and introduced stricter norms for foreign institutional investments in real-estate firms that want to sell equity. And stock market regulator Securities and Exchange Board of India (Sebi) has laid down stricter guidelines for valuing the land banks of real-estate firms.
Some analysts said there will be enough takers for the IPO, provided the share sales are attractively priced.
“Issues getting bunched up is more of a worry, the size is not a problem,” said Jayesh Shroff, who helps manage the equivalent of $4 billion (Rs16,400 crore) in assets at SBI Funds Management Ltd in Mumbai. “Considering the environment is not absolutely conducive for both banking and real estate, both (issues of DLF and ICICI Bank) will have to be finely priced.”
DLF received a clearance for the IPO from Sebi in May 2007, nearly a year after the company first filed its application. DLF, a listed company until 2003, was forced off the exchange after the promoters violated a stock-market ruling that barred them from holding more than 90% of the firm.
It filed for a listing in May 2006, but failed to get Sebi clearance, owing to a dispute with minority shareholders arising from the earlier delisting. The minority shareholders filed a complaint with Sebi soon after DLF first filed its offer document alleging that they were excluded from a rights offer made by the company in 2005, a subsequent bonus issue and a stock split.
The company aborted its attempt at an IPO. It subsequently reached a settlement with a majority of its minority shareholders. Its latest attempt to seek a listing was made in January this year.
“(The) DLF management is well-regarded and their land bank is well-situated, but (on) the last go-around, the promoters were overly greedy in assuming that dumb Western money would plough in at any price,” said Daniel Loeb, chief executive of US hedge fund Third Point LLC.
He added that there was enough money in the system for both the DLF and ICICI Bank issues to go through.
DLF had Rs6,638 crore of debt on its books as of 30 November 2006, according to the documents it filed with Sebi in January. Some of the money raised from the share sale will be used to pay back loans.
The company was founded by businessman Chaudhury Raghuvendra Singh in the 1960s. It grew in the mid-1970s by developing its DLF City project, which changed Gurgaon near Delhi from a village to a commercial and residential hub. Until the mid-1990s, most of DLF’s operations were in Gurgaon and Delhi. But now the company is expanding its operations outside Delhi.
The company is currently headed by K.P. Singh, a former army officer who inherited the firm from Chaudhury Raghuvendra Singh, whose daughter he married.
After the IPO, the holding of Singh and his family would come down to around 90%.
The price band of Rs 550-600 puts the value of the Singh family’s stake in the company around Rs94,300 crore or about $23 billion. That would make Singh, the head of the family, the ninth richest man in the world along with Hong Kong-based tycoon Li Ka-Shing. According to Forbes, L.N. Mittal is the richest Indian in the world with net assets worth $32 billion and Mukesh Ambani, the richest resident Indian with a net worth of $20.1 billion.
Merrill Lynch & Co. and Kotak Mahindra Capital Co. will manage the sale, with Citigroup Inc., ICICI Securities Ltd, Lehman Brothers Securities Ltd, UBS AG, Deutsche Equities India Pvt. Ltd and SBI Capital Markets Ltd helping.
(Subramaniam Sharma of Bloomberg contributed to this story.)