New Delhi: Promoters of DLF Ltd, India’s largest listed real estate firm, stepped in with more than Rs1,100 crore worth of interest-free loans to help another one of their firms, DLF Assets Ltd (DAL), pay for properties bought from the listed company in an expensive market for commercial loans and an indifferent market for equity offerings.
DLF Assets, whose overseas listing has been delayed, has bought Rs7,500 crore of assets from DLF Ltd until the year ended March (from the time it was founded), and while it paid for some of that by selling equity through private placements, the Singh family that founded DLF gave it Rs50 crore as additional equity capital and Rs1,150 crore as an interest-free loan for an indefinite period to tide over a tight money market.
The “promoters have to nurture a company before the IPO (initial public offering),” said Ramesh Sanka, DLF’s chief financial officer. He said borrowing at commercial lending rates higher than the returns DLF Assets would get from the rental income of the properties it held, “would result in a loss”.
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 was hoping that DLF Assets would be able to list as an office trust in Singapore and use that to pay for these transactions.
However, a tepid market for share offers has put the brakes on several equity offerings. Worse still, lenders have tur-ned shy after the world’s bigg-est banks took billions in mar-kdowns from bad debt, making debt funding very expensive.
“DLF is planning to raise money by listing DAL and paying money back to DLF. But there is a huge liquidity crunch in the market,” said Shailesh Kanani, an analyst tracking the company for Angel Broking. “The company’s plans for a listing have gone for a toss and that is why it postponed the IPO. DLF has a huge problem because DLF Assets owes a lot of money to it.”
DLF Assets has raised $1.15 billion from three investors through private equity placements, the latest of these being $450 million from London-based Symphony Capital by issuing compulsorily convertible preference shares. The price at which shares will be converted and the resulting stake size pegged to the issue price of DLF Office Trust in Singapore.
Previously, DLF Assets received $200 million from a fund sponsored by Lehman Brothers and $400 million from another global investment firm, DE Shaw. The three rounds of funding enabled DLF Assets to pay part of its dues to DLF.
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’s website.