DLF Promoters' Stake Sale-Part 1

Well, you know, the structures — there are two issues to it. One is the issue of removing the quote on co-route relationship issue, which an independent committee of directors is already examining. This decision we have taken doesn't change that; that process continues. Second was the question of funding it. So, any structures which are legally devised do not provide funding. Our desire was to provide funding into the transaction, and accordingly we have provided the funding into the transaction through this route. We as promoters believe in DLF. We believe in the quality of assets DLF holds, and I think the best way to show our commitment to DLF was to actually put cash into the company. And the best asset we felt we had to achieve that goal was the shares of DLF. We consulted with our major shareholders, and most of our large shareholders in fact encouraged it because they said it will also increase liquidity of the DLF stock. So it's a welcome move, and accordingly we did it.

I don't know the exact numbers because the allocation list is just out, but the main one would be Capital. Capital is one of our largest shareholders. They've taken, I'm told, a very large stake in this transaction — 5% of the 10% that you sold, roughly. Almost could be as large as that. Could be. Could be. HSBC was — HBIS as they call it — HBIS is a large stakeholder again, who have taken a large stake. Fidelity has come in in a large way. Our other existing shareholder, MIC, has bought in. A number of funds have participated in this transaction. In fact, the demand was good enough to a point that we, I'm told, closed the book soon.

No, I think, you know, as you'll appreciate, it's a somewhat sentimental and painful decision to take. But mentally I was always conscious that somewhere down the line, DLF must become a company which has about a 25% free float in the market. Possibly we could have done it in better times if the world was more normal, but we are now at about 22% free float, close to that goal. And that will make our company, I think, longer term and much more transparent listed entity. Maybe institutional investors are more comfortable. With 10% float, they were not too comfortable taking large positions in our stock. So I've been reassured by most of our institutional investors that they will up their holdings and build large positions because of this larger float.

No, I don't think so. I mean, I would hope not, firstly. And as I said, 75% would be anyway a litmus goal for us. So maybe 2-3% over time for some reasons, you know, maybe, but nothing in the near horizon, and that's for the next generation to decide, I guess. Unless you're totally pressed to, you will not. We are not pressed to, actually. Frankly, this issue was done with good intentions. It will show great value. REITs in Singapore, as you are aware, have now increased in value sharply in the last couple of months as the demand picks up for office space with the global economy recovering. DLF will once again show its true value. So I don't think there was any problem doing it, but the perception issue apart from everything else was what we felt we should deal with and deal with straight on. As regards the fundraising issues, I think I've already mentioned in our quarterly analyst presentation: we will deleverage the company by at least 50% at that moment in time. I think with this taking place, I'm reasonably confident we'll deleverage by at least two-thirds if not 75% debt for this company. I think within a few months, it will be possibly a closed chapter.

We basically stipulated. There's two main sources. One is buyout of D's ISOM. So we will negotiate that transaction, and we expect a reasonable amount of the money will go into that buyout. How much roughly? It could be somewhere around 2,000 crore rupees. Okay. The balance of it would come into DLF through an advance from D. The entire 1,800 crore — 1,800 less expenses. Yes, there's no leakage in this transaction. Okay. There's only D and DLF and fees and brokerage and taxes. That's it. So 1,600 to 1,800 crore, DLF will get. DLF will get in addition to the 2,000 crore which I've already mentioned in the presentation. So basically, DLF by the end of this year will be receiving from DLF somewhere north of 3,500 crore, maybe somewhat short of 4,000 crore, against an estimated liability of 4,900 crore total. So I think that basically the receivable story also will be a closed chapter.

About 1,000 crore will remain. As the leasing keeps taking place, as the market is recovering, we'll quickly raise debt on it and pay it off. So I mean, that will depend on how fast the leasing takes place — maybe 6 to 8 months more after the end of this financial year. If markets don't revive, maybe within this financial year if we have a strong revival in the economy as people are talking about. Why do you say 1,000 crore? Because even if you pay 1,600-1,800 crores, the total receivable is for 3,900-4,900 crore. 2,000 crore you already said, we already contracted for. We have leases with us and the debt is in place. As the day the move happens, the bank gives us the money and we pay it onto DLF. So within this year, we'll be paying DLF a total sum of 2,000 crore from the leases and about whatever, 1,500-1,600 crores from this transaction. So basically about 3,500 crore plus will be paid into DLF within this year itself — a large chunk of it now, and balance in the next few months as the leases keep maturing.

No, well, there's nothing prudent and honorable about it. But, um, yes, we do value our commitment seriously. They came in at a good time, they supported us. The intention was to list the company; the takeout was through a listing, that for obvious reasons did not work out. They were needing the capital, and they've been supporters of our company for a long time. I hope the relationship will be strengthened by this move, and we just felt it's the right thing to do.

Uh, it may be there. I mean, I said the relationship is strong. I hope it continues to be strong. That's a distinct possibility, I hope so, let's put it this way. But there was no written commitment that you'd given to D that you'll buy back their stake if it's not listed. There was an option available to us which we have exercised, or which we shall exercise shortly. To that extent, there was no commitment, but there was an option available to us.

We have an option again with them, but their desire is to actually stay invested and still proceed for a greater upside than just principal return of money. So you won't need to buy Symphony stake? I don't think so. I mean, as I see the markets today, I don't think so.

No, I see what happens next year or two, who knows the answer. Okay, I mean, world has been a strange place in the last 6 to 8 months. Hopefully it'll be a better place in the next 6 to 8 months. As the markets are reviving, as the business is reviving, I think they'll walk away with a good profit and I would not need to do anything in that regard. If the markets completely tend to, I would say, collapse in the next 2 years — distinct possibility doubtful. I think in that situation naturally we will try to help and assist them, but I don't see that to be a possibility, and they are patient people and I think they'll wait through.

We will negotiate that. That amount there will be some return issue, and there's a forex cost which has to be borne, unfortunately. The money going to DLF assets —

Uh, no. There's no valuation issue with DLF assets right now. I as a promoter will just advance the money to DLF assets, who in turn will advance the money to DLF Limited. The valuation exercise of DLF assets, as you know, we are keeping off. We have entrusted it to an independent committee of directors who have got a large number of independent advisers to advise them. I don't want to get into the valuation story of DLF assets. That's best left to those experts to do and the committee to judge. So whatever comes out will be the value.

No, the market has recovered significantly in the last couple of months. It had dropped down to about 12% return, 11 to 12% last, as I hear it now the return figures are coming closer to 10%, in fact approaching single digit numbers. So I think we are almost getting whole in that number. In case the markets remain where they are, I don't think there's any significant discount now. I don't think there's any significant premium now; we are kind of at that point. The independent valuer will give us his value.

Look, there are two ways to look at it. One is a value when you sell something, and one is the value of the income you receive. DLF assets is receiving high quality income from high quality tenants on a 9% tax free basis. In today's falling interest rate environment, a 9% tax free return I think is a handsome return. Normally, if this was any kind of a bond, it would have actually appreciated in value. So that's the way I look at it. I would expect over time the value of this asset to be possibly below the 9% number at which we have transacted for it. In the Singapore markets or international REIT markets on a normal steady state basis, such kind of assets would be valued at about 6 to 7%.

Uh, no. I don't know the number exactly, very frankly. But I think a final steady state value in excess of 10,000 crore, between maybe short of 15,000 crore, that would be in normal markets a more normal valuation which could be expected for the assets which have been created. But in current market conditions, I think the lower end of that range still holds — 10,000, I think so.