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Business News/ Opinion / Online-views/  DLF could get rid of the DAL overhang
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DLF could get rid of the DAL overhang

DLF could get rid of the DAL overhang

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The markets have always been uncomfortable about DLF Ltd’s related party transactions with promoter-owned entity, DLF Assets Ltd (DAL). DAL purchased properties developed by DLF, propping up the latter’s revenues, but delayed payments, resulting in huge receivables for the real estate developer. DAL’s attempts to raise funds through private equity investors have not fructified either, causing it to consider selling out to DLF.

Also See Steady Going (Graphic)

As it is, DAL has to fulfil the obligation of returning the original investment of one of its major investors, DE Shaw and Co. Lp. This is because DE Shaw’s $400 million (Rs2,020 crore) investment has a capital protection clause. According to news reports, the company has planned to securitize lease rentals on DAL’s books to raise funds for the DE Shaw buyback.

According to analysts at IIFL Capital, this will considerably increase the debt burden of the DLF consolidated entity (DLF+DAL), after the acquisition.

The good thing about the acquisition is that the overhang of related-party transactions with DAL will disappear and the company’s valuations can be expected to improve at a faster pace when the tide turns in the realty sector. Of course, this is provided the acquisition process is smooth and doesn’t go against DLF’s minority shareholders.

Write to us at marktomarket@livemint.com

Graphics by Sandeep Bhatnagar / Mint

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Published: 26 Mar 2009, 11:02 PM IST
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