DB Realty sat on director’s resignation for 3 months

DB Realty, the embattled real estate group, kept in abeyance an independent board member’s resignation for three months, underscoring a shaky governance record.

Finally on Friday, it announced that Shahzaad Dalal, one of the independent directors, had resigned.

DNA learns that Dalal, vice-president of IL&FS Investment Managers, had sent his resignation to the company last year in November.

“They just screwed it up,” said a person familiar with the issue.
Ideally, the company should have informed the board and informed the stock exchanges.

“They completely mistimed it (announcing the resignation now),” the source added.

But Vinod Goenka, managing director and co-promoter of DB Realty, said, “Dalal had informed the board in December that he wanted to resign, but submitted his resignation now.”

Trinity Capital Plc, a UK-based real estate fund, and IL&FS had bought a 5.92% stake in DB Realty for $51.5 million in April 2007.
There is a lock-in on this stake till February 16 this year, Goenka said.

The DB Realty share was listed on February 24 last year at Rs455. The stock has since plunged 70%. It is understood that IL&FS and Trinity would not like to liquidate their stake at current prices.

Meanwhile, Goenka, who was busy firefighting all of Friday, declined to comment, even as he acknowledged that the arrest of the other co-promoter Shahid Balwa has disrupted plans to raise Rs1,200 crore from US-based private equity groups.

“All this news would make them wait and watch,” Goenka said.
Goenka said the company had bought land for 31 projects from internal accruals and only for the Bandra land project it was expecting to raise money from private equity players.

Goenka’s attempt to calm frayed nerves in the market succeeded at least on Friday as short covering of shares saw the share rebound 10.35% to close at Rs139.70.   

Balwa remains in CBI custody, and he’s being questioned for his role in DB Etisalat (then called Swan Telecom), one of the two companies at the epicentre of the 2G licence scam.

DB Realty is also being investigated for a Rs 214 crore loan it gave Kalaignar TV, promoted by DMK supremo M Karunanidhi’s family.
After getting the 2G licence, Swan sold 45% of its stake to UAE-based Etisalat for Rs 4,500 crore.

In a conversation with DNA, Goenka tried to distance his realty firm from the shenanigans of the group’s telecom venture.

“The CBI and the courts are investigating and let us not talk about it now,” Goenka requested.

DB Realty’s problems thus far solely arose from those telecom misadventures, he said.

“Etisalat DB and DB Realty have no connection,” Goenka clarified, blaming the media for the giving his company a negative perception.

Then why was he and Balwa members on the board of Etisalat DB?

Goenka said the telecom company was run by Etisalat and that Balwa and himself were non-executive directors who merely attended Etisalat DB board meetings every two months.

Reacting to media reports that banks are reviewing their exposure to the company, Goenka said banks had a loan exposure of only Rs 387 crore to DB Realty.

“We don’t blame banks for it as it is natural for them to worry with so much of bad publicity around us,” Goenka said.

But he alluded his realty firm was very profitable and therefore can manage on its own.

But the promoters have pledged over 28% DB Realty stake with the banks, meaning they have borrowed funds to run group businesses.

According to Goenka, this was done for the DB Hospitality venture, (DB Realty had a minuscule stake of less than 2% in the hotel venture, he claims.)

The markets perceived desperation when DB Realty advertised in a newspaper inviting  bids from realtors to buy transfer of development rights or TDRs that it owns.

Under TDR, a certain amount of additional built up area is made available in lieu of another area relinquished or surrendered by the owner of the land, so that he can use extra built up area either himself or sell it.

The move to encash TDRs and the advertisements to that effect was to monetise TDRs when prices are attractive and also because more TDRs will accrue shortly as an additional 1.5 million square feet of slum redevelopment is being readied by his company.

“For six months we kept TDR sale on hold,” Goenka said. “Now TDRs worth Rs600 crore are being monetised. There is a huge demand for it,” he said.