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Business News/ Companies / News/  DLF promoters to sell 40% stake in rental arm
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DLF promoters to sell 40% stake in rental arm

Firm to sell 40% stake in unit that owns many of its rent-generating assets and a few land assets to investors

The move facilitates the monetizing of the company’s rental assets through a stake sale to private equity investors or a Real Estate Investment Trust (REIT), and will also effectively reduce the debt on DLF’s books. Photo: Ramesh Pathania/MintPremium
The move facilitates the monetizing of the company’s rental assets through a stake sale to private equity investors or a Real Estate Investment Trust (REIT), and will also effectively reduce the debt on DLF’s books. Photo: Ramesh Pathania/Mint

New Delhi: Promoters of DLF Ltd, India’s largest developer by market value, will sell their 40% stake in a subsidiary that owns many of the company’s rent-generating assets and a few land assets to institutional, third-party investors, the company said on Thursday.

The move facilitates the monetizing of the company’s rental assets through a stake sale to private equity investors or a Real Estate Investment Trust (REIT), and will also effectively reduce the debt on DLF’s books.

An audit committee, after reviewing and evaluating many options to drive long-term growth of the rental business and avoid potential conflict of interest between the promoters and the company in relation to the rental business, recommended that the promoters sell their shareholding in the subsidiary DLF Cyber City Developers Ltd (DCCDL) to other institutional investors.

With this, DLF promoter companies Rajdhani Investments and Agencies Pvt. Ltd, Buland Consultants and Investments Pvt. Ltd and Sidhant Housing and Development Company, which hold 40% equity shareholding in DCCDL will sell their stake to private equity (PE) investors. DLF Ltd will continue to hold its 60% stake in DCCDL.

DLF promoters have a March 2016 deadline to convert their compulsorily convertible preference shares in the subsidiary DCCDL into equity shares.

DLF didn’t disclose the capital it would raise through this exercise although PTI cited people whom it didn’t name as saying that it would be between 12,000 crore and 14,000 crore.

“This will be a game-changing mechanism for DLF and serves three objectives. It will help the company partner long-term investors and benefit from the association, will help deleverage the debt in the development or residential portfolio when the promoters put back the money from the equity sale into the holding company and will help reduce the conflict of interest with the CCPS holders in relation to the rental business," said Saurabh Chawla, senior executive director, finance, at DLF.

DLF’s overall rental portfolio is expected to earn around 2,700 crore of annual income this year, of which about 2,300 crore will come from DCCDL.

DLF’s net debt increased by 633 crore to 21,598 crore in the quarter ended 30 June. Of this, 7,598 crore of debt belongs to its development firm (that includes residential projects) and the remaining 14,000 crore to its rental portfolio.

With an asset base of 30 million sq. ft in 2015-16, DLF said in September that it wants to either set up a private rent company with third-party shareholders, where its promoters can exit and PE investors can come in, or put the assets directly in a REIT platform and opt for a listing, whichever is faster.

“Now that the decision has been taken, the valuation of the rental assets and the land holdings in the subsidiary company will be done before DLF starts formal talks with funds," said Sandipan Pal, analyst, Motilal Oswal Securities Ltd.

In a continuous effort to raise capital, for both debt reduction and to speed up project development, DLF Home Developers Ltd raised 1,990 crore in September from Singapore’s sovereign wealth fund GIC Pte. Ltd, when the two formed a joint venture to invest in and develop two upcoming residential projects in central Delhi.

DLF Ltd gained 0.11% to close at 138.65 per share on Thursday on the BSE while the benchmark Sensex lost 0.7% to close at 26,845.81 points.

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Published: 08 Oct 2015, 09:36 PM IST
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