DLF, the country’s largest realtor by market capitalisation, has split its commercial realty business into two verticals — development and annuity.
The development company would have access to land parcels which can be sold off, while the annuity company will hold assets which generate rental income, the company said in a conference call to analysts on Thursday.
So far, DLF built and leased its commercial assets and then sold them to DLF Assets (DAL) at the market rate.
But the bisection of the business raises several questions, some of them all too obvious.
First, the listed company has already booked Rs 10,500 crore from sale of 13.5 million square feet (msf) to DAL. But only 6.35 msf of this has changed hands so far — nearly 7.3 msf remains to be handed over.
Again, for the share swap, the valuers have considered only 6.35 msf and not the entire 13.5 msf. Why?
Secondly, DAL still has to cough up Rs 2,800 crore to DLF. The DLF management said in an analyst call Thursday evening that DAL will pay as and when DLF delivers the leased property to DAL. Question is, when will that happen?
Thirdly, the promoters, K P Singh and family, appear to have foregone their economic interests in settling for a 40% stake in DLF Cyber City Developers.
To repeat, foregone economic interest. Hello, are we missing anything?
There’s more. The company hasn’t shared the very basis of the share swap — the valuation. What gives?
Going by the deal structure, the valuers have given a discounted weighted average cost of capital of 17%, whereas analysts tracking DLF have always done it at 13-14%. Is it because the valuation of the land parcels has fallen?
An analyst covering the company says DLF has already booked receivables from DAL and some properties —- which were booked under the annuity business —- and which could take 4-5 years for completion.
Also, when DAL gets listed, the promoters will be looking for a premium, the analyst said.
DLF sold its ready and leased commercial assets to DAL at the market value, which was higher than the present rates having been sold during the boom time.
DAL has not been able to pay off its debts for a long time and after this integration, DLF has bought DAL at a lower valuation.
Thus, when DAL lists, it will effectively bring more returns to the promoters and DLF shareholders.
Maybe, or maybe not.
We will know for sure when the books are consolidated and the next results are out.
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