DLF: The DLF-DAL conundrum

POWER MOVES

On 13 May, the Singh family of DLF sold 168 million shares at around Rs 230 apiece in the market for Rs 3,860 crore. This has brought the stake of the promoters down to 78.6 per cent but averted a mini-crisis that had cropped up.

The Singh family owns a real estate investment trust called DLF Assets Ltd (DAL) which had bought assets worth Rs 10,400 crore from DLF in 2007. Of this, only Rs 5,500 crore was paid and DAL still owes Rs 4,900 crore to DLF. DAL had raised money from a clutch of investors to finance the asset acquisition. One of them was hedge fund DE Shaw which invested $400 million in DAL through optionally convertible preference shares in 2007. With real estate valuations in the dumps, DE Shaw decided against conversion and demanded the money back.

 

The Singhs will invest the entire money raised from the sale into DAL which will use it to pay off DE Shaw and settle some of the money it owes DLF. But that won’t be sufficient to pay the entire Rs 4,900 crore. So, the Singh family has decided to sell DAL to DLF lock, stock and barrel. DAL gets annual lease income of Rs 600 crore. It will now show up in the balance sheet of DLF.

But a nagging question remains: The assets which were valued at Rs 10,400 crore in 2007 are now worth Rs 8,500 crore; so, whose balance sheet will show the Rs 1,900-crore gap? DAL is a new company and does not have the net worth to absorb such a huge loss.