DLF’s debt woes to linger as stake sale deal gets delayed

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Bengaluru: India’s largest property developer DLF Ltd, which saw its net debt rise by Rs1,021 crore to Rs23,530 crore in the September quarter, may see further pile-up in debt as residential cash flows will get impacted due to demonetisation, continuing construction spend and delay in the critical stake sale transaction.

The stake sale aims to raise about Rs12,000-13,000 crore with the promoters selling 40% in DLF’s commercial property arm, DLF CyberCity Developers Ltd, to institutional investors. Post this transaction, with the promoter infusing the sale proceeds in DLF and a subsequent equity raising, the concern on DLF’s leverage will be addressed with Devco or its residential development arm becoming significantly deleveraged or debt-free.

With its commercial office portfolio stake sale transaction getting pushed to the March quarter or even later, DLF’s debt woes will continue to linger for a few more months and its debt paring schedule will also get postponed, said analysts.

“The transaction is critical for DLF because it will deleverage its balance sheet and improve the overall health of the company. The impact of demonetisation is expected to further bring down cashflows from residential projects, but there is no respite until the deal is consummated,” said Parikshit D. Kandpal, senior analyst, HDFC Securities Ltd.

DLF’s debt has increased by Rs600-700 crore every quarter for the past few quarters. Its spend on project construction has been at around Rs225 crore every month and will continue to do so till the last quarter of 2017-18, DLF’s group chief financial officer Ashok Tyagi said in an analyst call on Saturday.

“Once concluded, it will be the largest potential private equity real estate transaction in Asia. The signing of the deal will happen by March but there is a CCI (Competition Commission of India ) approval that may be applicable,” Tyagi said.

As a result, the deal closing may trickle into the next fiscal year now.

“Till the end of October 2016, the company was experiencing reasonable traction of sales. Since then, the markets have softened due to the recent developments. The Company may experience deferment of sales in the near term. Sales is expected to pick up only subsequently,” DLF said in an earnings presentation on Friday.

The presentation said that at present, the transaction is running slightly behind our initial estimates.

“The firm shall make all the efforts for an early closure but would like to indicate that there is a possibility that the closing may flow into the next fiscal year.”

“With the transaction getting pushed to the March quarter, DLF’s debt reduction schedule will also get delayed by 6-9 months. Even after the deal is done, it remains to be seen at what valuation it is closed and the money that comes in post taxation,” said another analyst from a Mumbai-based brokerage, who didn’t wish to be named.

Blackstone Group LP and Singapore sovereign fund GIC Pte are the two potential bidders who have been shortlisted to buy stake in DLF’s rental portfolio, Mint had earlier reported.

DLF hasn’t yet disclosed names of the shortlisted firms.

DLF on Friday reported that net profit for the three months ended September remained unchanged at Rs206.09 crore, from the year-ago quarter. Revenue rose marginally by 1.5% to Rs2,070.67 crore in the fiscal second quarter.

At 1.42pm, DLF was trading at Rs113.65 on BSE, down 1.09% from previous close while India’s benchmark Sensex Index fell 0.53% to 26,604.79 points.