The stock market regulator's move to ban DLF chairman KP Singh, his son and vice-chairman Rajiv Singh and daughter Pia Singh, along with a clutch of other senior company officials, from raising funds in securities market has dealt a heavy body blow to the Delhi-based real estate giant. The company will face tough challenges while sewing up funds for its upcoming projects.
On Tuesday, investors dumped the stock on local bourses amid concerns over the company's future prospects, pushing it down 29% to Rs105, its lifetime low, eventually wiping out nearly Rs7,500 crore in market cap.
"The SEBI order has put an end to DLF's plans of floating Real Estate Investment Trusts (REITs), under the new rules. Similarly, it will have to put on hold its proposed bond issues backed with lease rentals from its commercial properties," said a Mumbai-based investment banker.
In the first quarter, the company raised Rs900 crore though India's first commercial mortgage-backed security (CMBS) issue via two associate companies — DLF Emporio Limited and DLF Promenade Limited from institutional debt investors such as mutual funds and insurance companies.
In a recent analyst presentation, dated July 31, DLF said the company planned to raise around Rs3,000-3,500 crore capital in the current fiscal against its office properties.
Another banker said, "It will be very difficult for the company to raise money from the money market as the investors will stay away from any issuance from the company given the action from the regulator."
On its part, DLF is looking at all legal options to counter the SEBI ruling. Rajeev Talwar, executive director, DLF, told dna, "We will complete our residential projects and hand over the completed projects to our investors without any delay." He refused to comment on the company's plans to raise funds for their ongoing project.
According to a real estate expert, DLF may be forced to raise funds at a higher interest rate from private equity players. "Though the company sits on land banks, any sale at this point will be viewed as distress sale. Hence that option may not be feasible now.
DLF sits on a land bank of 307 million square feet, spread across six cities in the country, according to the company's presentation.
Once a darling of stock markets after its initial public offer of shares (IPO) in 2007, third largest in the country ever, that raised around Rs9,187.50 crore with a price band of Rs500-550, DLF has steadily lost its glitter over the past few years.
The net debt on the DLF's books is Rs19,064 crore at the end of the first quarter ended June 30, about Rs2,319 crore higher than the preceding quarter, major portion of which is bank debt. Bankers are worried about the developments but hope that the land banks that the company has may help them tide over the problem.
They are however hopeful that the land banks of the company may help them come out of the crisis. A banker to the company said, "We have lent to a special purpose vehicle (SPV) formed for the development of a real estate project and the sales of the project are escrowed."
If DLF issues a private placement and does not list the bonds, the company may still be able to raise funds despite the Sebi ban, say bankers. As the investor sentiment has taken a beating, it will take a while before investors start buying new securities related to the group.
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