DLF’s debt plan may trip on slow economy

DLF Ltd, India’s largest real estate developer, plans to cut Rs6,000-7,000 crore from its total debt of close to Rs24,000 crore in the next two years through improved cash flows and non-core asset sales, but analysts are doubtful that the target will be achieved.

Rajeev Talwar, group executive director, DLF, said the target is to offload debt of Rs6,000-7,000 crore in the next two years.
“This reduction would be achieved through a mix of cash flows and sale of non-core assets,” he said.

Stake sales in DLF’s IT park projects in Noida and Pune are under consideration.

“The sale is under consideration, such processes take time,” Talwar said, denying any plans of selling the company’s only land parcel in Mumbai.

“We do not plan to sale that land parcel, the company would develop it,” he said.

DLF has a land bank of close to 370 million square feet, of which, Talwar said, 10% could be non-core.
However, analysts are not optimistic about the company’s debt reduction plan.  

“The question is will it happen? The economy is not in a good shape. There needs to be a buyer as well for such a huge sale. Certain special purpose vehicles of the company have ready buyers and might be sold, but to sell all planned assets looks difficult. The size of these SPVs is very small compared to the larger picture that we are discussing,” said an analyst from a foreign brokerage.

But Talwar of DLF said citing unfavourable economic conditions would be contradictory to the claims of high property prices.
Some analysts said even if deals work out, significant debt reduction might still be an issue. Anand Agarwal and Rahul Kumar from Jefferies Research wrote in a note last week, “The high expectations of debt reduction over the next 12 months is likely to turn into a disappointment given DLF’s lack of discipline on land acquisitions, additional cash flow pressures and, more importantly, its core business not being cash-flow positive.”

However, analysts say the picture is gloomy on the cash-flow side as well.  “The real problem for DLF is that its core business is not cash-flow positive. Recurring cash flows have remained negative in the past even before considering land acquisitions,” the Jefferies note said.  Talwar said with a cash flow close to Rs8,000 crore, the company is quite comfortable.