In the biggest instance of foreign investment in India’s real estate sector, the promoters of DLF will sell their 40% stake in the company’s rental arm for ₹11,900 crore, including the sale of stake worth ₹8900 crore to the Government of Singapore Investment Corporation (GIC).
The promoters - K.P. Singh and family - are touted to be willing to part with their 33.34% stake in DLF Cyber City Developers Ltd (DCCDL) to Singapore’s sovereign wealth fund GIC, for ₹8,900 crore.
The remaining shares would be bought back by the DCCDL for ₹3,000 crore. DLF promoters are expected to get net proceeds of over ₹10,000 crore after tax and a substantial part of this amount will be invested in DLF Ltd for repayment of debt that has touched nearly ₹26,000 crore.
India’s largest realty firm DLF on Friday informed the Bombay Stock Exchange (BSE) that the board has approved the share purchase, and the agreement arrived by the shareholders with GIC -affiliate -Reco Diamond, promoters and the DLF Cyber City Developers.
At present, the promoters hold Compulsorily Convertible Preference Shares (CCPS) in DLF Cyber City Developers, which is worth 40% stake and DLF owns the remaining 60%.
“The gross proceeds to the sellers (promoters) from the transaction would be approximately ₹11,900 crore, which includes secondary sale of equity shares (post conversion of CCPS) to Reco Diamond for ₹8,900 crore ...,” DLF said in a statement.
The deal also include “two buybacks of CCPS by the DCCDL for ₹3,000 crore, out of which one buyback shall be before closing and one shall be 12 months thereafter.“
Post the completion of these transactions, DLF’s stake in DCCDL will increase to 66.66% from current 60%, while GIC will have 33.34% equity shares in DCCDL. DLF promoters had initially planned to sell the entire 40% to the GIC.
“The transaction implies an enterprise value of ₹35,617 crore for DCCDL, translating into equity value of approx ₹30,200 crore,” DLF said, adding that the transaction has been structured to make best use of the surplus cash in DCCDL.
This is the second investment from Singapore’s sovereign wealth fund GIC into the DLF Ltd. In September 2015, GIC had invested about ₹2,000 crore in DLF’s two housing projects. DCCDL, which holds the bulk of commercial assets of the DLF group, earns about ₹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% stake in DCCDL. nitially, 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.
DLF’s Senior Executive Director (Finance) Saurabh Chawla last week said that the GIC would approach the Competition Commission of India (CCI) for approval after the agreement, while DLF will also have to seek shareholders’ nod. The CCI approval is expected by early November.
“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 said.
DLF’s promoters infusion of fund into the realty major to cut debt would result in increase in their stake in the company from the current 75%. Hence, the promoters would have to bring down their stake because the SEBI norm requires minimum 25% of public shareholding.
Industry watchers have been near unanimous in their backing to the developments at DLF.
Commenting on the deal, CBRE South Asia CMD Anshuman Magazine said: “This is a great news for the real estate market. This will build confidence and encourage more global players to take a position in the Indian property market.”
Anarock Consulting Chairman Anuj Puri said: “By far the biggest deal in Indian real estate. This clearly demonstrates the confidence that long—term private equity invetsors have in the Indian real estate“.
Cushman and Wakefield India MD Anshul Jain said that the investment in the commercial office sector is driven by strong fundamentals and will be ultimately attract positive valuations and render stable yields. “This year will see the largest office asset purchase by GIC from DLF taking the overall investments in office assets to a new high,” he added.
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 ₹750 crore per quarter. Among other major deals in the commercial real estate, Brookfield in 2014 had bought stakes in six IT-SEZs from Unitech group for over ₹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 ₹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 ₹2,400 crore. Dubai-based Emmar entered India through a joint venture with MGF group in 2005 and had invested around ₹8,000 crore over the years.
Published - August 26, 2017 10:26 am IST
