Record deal: DLF promoters to sell rental arm stake for nearly Rs 12,000 cr

Promoters to sell 33.34% stake to Singapore's GIC and remaining would be bought back by DCCDL

DLF promoters will sell their entire 40 per cent stake in the company's rental arm for Rs 11,900 crore, making it the biggest deal in the Indian real estate sector.

The promoters — K P Singh and family — would sell 33.34 per cent stake in the DLF Cyber City Developers (DCCDL) to Singapore's sovereign wealth fund GIC for Rs 8,900 crore.

The remaining shares would be bought back by the DCCDL for Rs 3,000 crore.

Promoters are expected to get net proceeds of over Rs 10,000 crore after tax and a substantial part of this amount will be invested in DLF for debt repayment.

India's largest realty firm DLF on Friday informed BSE that the board has approved the share purchase and shareholders agreement with GIC affiliate Reco Diamond, promoters and the DCCDL.

At present, the promoters hold Compulsorily Convertible Preference Shares (CCPS) in DCCDL, which is worth 40 per cent stake and DLF owns the rest 60 per cent.

"The gross proceeds to the sellers (DLF promoters) from the transaction would be approx Rs 11,900 crore, which includes secondary sale of equity shares (post conversion of CCPS) to Reco Diamond for Rs 8,900 crore approximately...," DLF said in a regulatory filing.

The deal also include "two buybacks of CCPS by the DCCDL for Rs 3,000 crore, out of which one buyback shall be before closing and one shall be 12 months thereafter".

Post completion of series of steps as contemplated in the transaction, DLF stake in DCCDL will increase to 66.66 per cent from current 60 per cent, while GIC will have 33.34 per cent equity shares in DCCDL.

"The transaction implies an enterprise value of Rs 35,617 crore for DCCDL, translating into equity value of approx Rs 30,200 crore," DLF said.

The transaction, which will be subject to customary closing adjustments, has been structured to make best use of the surplus cash in DCCDL, it added.

This is the second investment from Singapore's sovereign wealth fund GIC into the DLF Ltd. In September 2015, GIC had invested about Rs 2,000 crore in DLF's two housing projects.

DCCDL, which holds the bulk of commercial assets of the DLF group, earns about Rs 2,600 crore rental income annually with 27 million sq ft of commercial space, largely in Gurgaon.

In October 2015, DLF had announced that promoters would sell their entire 40 per cent stake in DCCDL.

Initially, DLF received interest from about 25 global and domestic investors including Blackstone for this deal and then the company shortlisted six investors and finally zeroed in on GIC in March this year for exclusive negotiations.

After the agreement between the two parties, DLF's Senior Executive Director (Finance) Saurabh Chawla last week said that the GIC would approach the Competition Commission of India (CCI) for approval. DLF will also have to seek shareholders' nod.

The CCI nod is expected by early November, he had said then.

"This is one of the largest private equity transactions in India in the real estate space. The transaction shall create one of the leading platform play for rental properties, with rent yielding assets of 26.9 million sq ft.

"The portfolio, currently, has an under development pipeline of approx 2.5 million sq ft with further development potential of approx 19 million sq ft within the portfolio.

DLF's promoters infusion of the fund into the realty major to cut debt, which has reached nearly Rs 26,000 crore because of sluggish housing sales, would result in an increase in their stake in the company from the current 75 per cent.

Hence, the promoters would have to bring down their stake because the SEBI norm requires minimum 25 per cent of public shareholding in any listed entity.

With this deal, DLF intends to make its housing business debt free. In view of sluggish housing sales, the company is having a deficit cash flow of about Rs 750 crore per quarter.

On the commercial real estate, DLF, along with partner GIC, could consider launching the Real Estate Investment Trust (Reit) for its rental assets after this deal is closed.

Among other major deals in the commercial real estate, Brookfield in 2014 had bought stakes in six IT-SEZs from Unitech group for over Rs 3,000 crore.

Godrej Properties had sold 4,35,000 sq ft of office space at Bandra-Kurla Complex (BKC) in Mumbai for a valuation of Rs 1,479 crore in September 2015.

Essar group in February 2016 sold its 1.25 million sq ft Equinox Business Park at BKC in Mumbai to realty firm RMZ Corp for about Rs 2,400 crore.