DLF's debt soars to Rs 21,598 crore

Company plans to raise private equity funds at project levels to bring down debt; stock up 18%

The net debt of DLF, India's largest real estate firm, rose Rs 633 crore to Rs 21,598 crore at the end of the June 2015 quarter, compared to Rs 20,965 crore in the March 2015 quarter, the company said in a presentation to analysts on Friday.

Of the total debt, the net debt attributable to development business (DevCo) was Rs 7,598 crore, while Rs 14,000 crore pertained to its rental arm (RentCo).

Over the past few years, the company has been divesting its non-core assets to reduce mounting debt.

"The company is fully committed to improving its quality of debt and reducing debt attributable to DevCo. We continues to tap banking or capital markets to access long tenor debt," said the presentation.

According to the presentation, the company is also in talks with a few marquee private equity investors to raise funds at project level, which would reduce DevCo debt, thereby mitigating market risks whilst sharing financial returns.

The firm is also exploring the possibility of partially monetising its rental assets - about 30 million sq ft with Rs 2,400 crore of annual rental income. Earlier this week, DLF raised Rs 1,000 crore through non-convertible debentures.

On Thursday, DLF had reported a five per cent decline in net profit to Rs 122 crore for the quarter ended June owing to higher finance costs and an increase in operational expenses. However, total income rose to Rs 2,346 crore in the April-June 2015 quarter from Rs 1,852 crore in the year-ago period. The company's stocks went up 18 per cent and ended at Rs 134.90 on the BSE on Friday.

DLF also plans to complete its ongoing projects covering 20 million sq ft area over the next 12-18 months to create finished stocks and achieve better realisation when housing demand picks up. The company has unsold inventories of Rs 15,000 crore, which include finished stocks and unsold units in the projects launched but under-development, said Ashok Tyagi, chief financial officer of DLF, in a conference call with analysts.

"Despite muted demand conditions in most micro markets, the company is focused on execution to create finished product. The company believes that this is a superior strategy as compared to launching new projects. Once the demand comes back, the company shall be able to sell completed, finished products," the presentation said. DLF maintained its sales bookings guidance of Rs 3,500-4,000 crore for the current financial year.

"The offices and retail business would continue to show decent growth and we are exploring possibilities of partnering with large, long term investors in order to participate in this growth and create substantial shareholder value. The company has created a large platform of rent yielding commercial office and retail assets which is now ready to be partially monetised through sale of equity. This strategy shall allow the company to sharply reduce debt," said DLF.

With clarity emerging on Real Estate Investment Trusts code and tax applicability, DLF said the committee of independent directors would shortly provide the guidance for the growth of the rental business.

It would also help resolve the issue of promoters' compulsorily convertible preference shares (CCPs). "The company is taking appropriate steps and initiatives to resolve the CCPS issue. We can expect a completion of the process in a short period of time," it said.

In 2009, DLF had merged its subsidiary DLF Cyber City Developers (DCCDL) with promoter firm Caraf Builders & Constructions. DCCDL had then issued CCPS worth Rs 1,597 crore to promoters.