Rs 12,000 Crore Deal: Singapore’s GIC Leads Race to buy 40% Stake in DLF’s Rental arm

DLFNEW DELHI: GIC of Singapore is set to enter into exclusive bilateral negotiations with KP Singh and his family, the promoters of India’s largest real estate firm DLF Limited, to acquire their 40% stake in DLF Cyber City Developers Limited (DCCDL), the company that owns a portfolio of sublet commercial assets, including the entire Cyber City complex in Gurgaon.

The deal will help the promoters raise about Rs. 12,000 crores, valuing the rental arm at nearly Rs. 40,000 crores, inclusive of its Rs. 10,000-11,000 crore debt, said two persons familiar with the negotiations.

The promoters plan to use most of these funds in subscribing to a Rs. 10,000-crore preferential issue of DLF Limited, which in turn will use this money to retire a portion of its debt.

“The agreement is likely to be signed soon,” said one of the persons quoted above. The balance 60% in DCCDL is owned by DLF Limited.

A DLF spokesperson declined to comment. “We do not wish to comment on speculation. We are in our silent period as our quarterly results are scheduled for February 14,” said the spokesperson.

GIC did not respond to queries. Last year, Morgan Stanley and JPMorgan were mandated by DLF to help monetise their stake in an attempt to deleverage their balance sheet.

GIC, which already has close relationship with DLF, trumped Blackstone and a consortium of ruler wealth funds from Abu Dhabi and Qatar, added officials in the know. Close to 15 suitors had expressed initial interests to partner DLF.

DCCDL operates 27 million square feet of commercial property assets that are already leased and earning rent of Rs. 2,250 crore as of March 31, 2016. It also has 20 million sq. ft. of future development potential.

The proposed transaction will reduce DLF Ltd’s debt in a two-step transaction. The promoters will inject Rs. 10,000 crore into India’s largest real estate developer by purchasing shares in a preferential issue with funds raised from the sale of their stake in the company’s rental unit.

In addition, the real estate industry plans to raise about Rs. 3,000 crore from institutional investors. From these two transactions, the company will raise about Rs. 13,000 crore, and this money will be used to retire a portion of DLF Ltd’s standalone debt. In addition, DCCDL owes Rs. 11,000 crore to its lenders. As it will continue to be 60% owned by DLF Ltd, its debt will remain in the parent company’s books.

“DLF has been running operational cash flow deficiency of Rs. 5-6 billion (Rs 500-600 crore) per quarter due to slowdown in sales and continued construction spend (Rs. 6.5-7 billion per quarter).

With sales expected to remain muted, the company does not expect the gap to close in coming quarters. Closure of DCCDL transaction would help close that gap,” wrote analysts from Axis Securities in a report in December. DLF shares fell 0.07%, or 10 paise, to close at Rs. 147.7 50 on the BSE on Monday.

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