Bengaluru: DLF Ltd, India’s most valuable property developer, has sought expressions of interest from several top global investors to sell a 40% stake in its rental assets arm as it seeks to pare debt. The rental assets arm holds about 20 million sq.ft of leased-out office space and is valued at about $2 billion, a top company executive said.

Considering the size of the portfolio, multiple investors are likely to buy stakes in the office rental unit.

“Potential buyers will now submit expressions of interest, indicating how much of the 40% stake they would want to buy. (Non-disclosure agreements had earlier been signed with 20 investors). The process will move forward eventually towards a Reit (real estate investment trust) structure," DLF chief executive officer Rajeev Talwar said.

The transaction, which DLF has claimed will be a game-changer for the firm, involves DLF promoter companies Rajdhani Investments and Agencies Pvt. Ltd, Buland Consultants and Investments Pvt. Ltd and Sidhant Housing and Development Co. selling 40% in DLF CyberCity Developers Ltd to institutional investors. DLF will continue to hold the remaining stake in DLF CyberCity.

“While a transaction of this scale will add great value to any investor’s portfolio, this isn’t going to be a plain vanilla deal," said Shashank Jain, partner (transaction services) at PricewaterhouseCoopers India.“It will throw up challenges where multiple investors may be involved in a single transaction."

Some of the investors who are well positioned to buy the stake are Blackstone Group Lp, Brookfield Asset Management Inc., GIC Pte Ltd, Abu Dhabi Investment Authority and the Qatar Investment Authority, according to two property consultants who did not want to be named.

DLF did not confirm any of these names.

DLF is also gearing up to launch Reits worth as much as 6,000 crore in two tranches over the next two years.

Reits are listed entities that primarily invest in leased office and retail assets, allowing developers to raise funds selling completed buildings to investors and listing them on stock exchanges as a trust. Investors earn return on investment either through value appreciation or the rental income generated from commercial assets.

“The culmination of the transaction will be an important step to create two ‘pure plays’—residential business with zero debt, and an independent commercial business in partnership with the long-term institutional investors," DLF said in an October analyst presentation.

Finance minister Arun Jaitley in the Union Budget proposed to exempt Reits from the purview of dividend distribution tax— removing a significant hurdle to floating them in India.

Talwar said in a March interview that DLF will finish forming a special purpose vehicle in six months and the developer will be the first one to set up a Reit.

On the retail assets front too, DLF has started structuring ownership of existing assets in order to facilitate potential monetisation either through Reits or otherwise. In March, it decided to sell its shopping mall in Saket in the national capital to its unit Nambi Buildwell Pvt. Ltd for 904.50 crore, as part of this plan to streamline and monetize its existing assets.

As of 31 December, DLF’s net debt stood at 21,396 crore, down 1,124 crore from the preceding quarter. DLF posted a 24.6% increase in net profit to 163.95 crore in the December quarter from a year ago.

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