New Delhi: Hedge fund DE Shaw and Co.’s proposed exit from DLF Assets Ltd, or DAL, might hit a roadblock with the Reserve Bank of India (RBI).
This may be one of the reasons that the New York-based firm had second thoughts about exiting DAL, promoted by the founders of DLF Ltd, the country’s largest listed real estate company.
A disagreement between DE Shaw and DAL over valuation is another reason for the delay in the hedge fund’s exit, according to people familiar with the situation.
DAL buys and holds completed commercial assets of DLF.
In 2007, DE Shaw invested $400 million (Rs1,916 crore today) in DAL, for which it was issued compulsory convertible preference shares (CCPS).
In a move to provide an exit to DE Shaw, DLF’s vice-chairman Rajiv Singh, along with his wife Kavita, sold a 9.9% stake in the New Delhi-based DLF in May. A major share of the proceeds of this sale was meant to buy back DE Shaw’s stake in DAL.
In reply to an investor query, RBI has clarified that the fixed put option price in issuing the CCPS was a practice not in line with the Foreign Exchange Management Act, or Fema.
A put option is a contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time.
People familiar with the development say the central bank feels this is just a clever way of disguising debt as equity and that DAL had provided for a fixed put option price while issuing the CCPS to DAL.
The people also said Singh and DE Shaw had still not arrived at a consensus over the valuation, suggesting that Singh wants to lower the exit price of DE Shaw that had been agreed on before the DLF promoter’s stake sale.