DNA Money on December 11 broke the story of a merger between DLF and DAL through a share-swap in order to form a FDI-compliant entity that would be listed in S-REIT. Here’s how the deal has panned out.
What has happened?
DLF has in-principle integrated DLF Cyber City Developers Ltd with Caraf Builders and Constructions Pvt Ltd, both of which are engaged in commercial rental business.
Who owns Cyber City and Caraf?
Cyber City is a wholly owned subsidiary of DLF, the listed entity. According to Bombay Stock Exchange, the promoters own 78.65% stake in of DLF, while the public holds the rest. Caraf is the holding company of DLF Assets Ltd (DAL), promoted by K P Singh and family.
How are their portfolios?
Caraf has a total leasable area of 3.3 million square feet (msf) in its portfolio and nearly 96% of eventual economic interest in DAL, which at present has 6.4 msf of leased area. The 96% economic interest will be applicable only if Symphony Capital, which has invested in DAL, opts for the call option on its compulsory convertible preference share, which is convertible till 2012. Cyber City has 6.7 msf built-out space in commercial assets and will develop commercial component in Gurgaon and Mumbai and two operational malls.
What will the merger result in?
Post merger DLF will hold 60% in Cyber City, with the promoters holding the rest.
What are the concerns?
1. Valuation: Analysts say the biggest concern is the valuation. While DLF has said that it has accepted the recommendation of the special committee, which consisted of independent directors, its independent advisors and valuers, nowhere has it stated the valuation figure.
The basis of the valuation for the merger and the properties transferred are also not clear and so it is not possible to rate the deal, said an analyst with a domestic brokerage who did not wish to be identified.
Five other analysts DNA Money spoke to dittoed.
2. Debt: The debt in Caraf’s books is close to Rs 2300 crore, which will come into the books of DLF. “Obviously, now the debt comes to DLF’s books. Anyway, the promoters wanted to write it off as soon as possible from DAL’s book. Now they will pay off the debt only when DAL is listed in S-REIT and money comes through,” an analyst with an international brokerage said.
Analysts feel DLF’s efforts will mean nothing if it is not able to raise money from S-EIT.
How the investors react to DAL’s debt being brought on DLF’s books remains to be seen, particularly since DLF officials are saying the listed company will be the sponsor of DAL for future transactions and the receivables will get pushed away.
“DLF has already booked revenues of 7.3 msf from DAL. How the repayments will happen has not been mentioned,” an analyst from a domestic brokerage said.
Comments