When DB Realty ended up dialling the wrong no

Big trouble for the DB Realty group began with their unlinked diversification into the telecom business three years back. It’s a sector where the realtor had little experience.

Following Shahid Balwa’s arrest, the shares of DB Realty fell 5.87% to end the day at Rs129.05, a new low but not before plunging as low as Rs109.70.

As the share price tanked, DB Realty tried to firefight issuing a statement to assuage investor sentiment.

DB Realty, in a statement said their managing director Shahid Balwa was “wrongly implicated” in the investigation into the mobile licence scam.

The company or Balwa did nothing “inappropriate or illegal, and will strongly contest the proceedings, the statement said. It also said the company will continue its business in the normal course under managing director, Vinod Goenka.

DB Realty was listed in February last year at Rs 468, and has fallen 72.42% since then, reducing its market cap to Rs3,139.25 crore.

As share price fell, the pressure on promoters mounted to make good the losses by providing more promoter’s holding to financial institutions towards pledge.

Neelkamal Tower Construction Pvt Ltd, one of the investment arms of the promoters of DB Realty, pledged 3.8% or 92 lakh shares on January 29.

Neelkamal Tower thus far has pledged 29.7% of its stake in DB Realty.
At the end of December quarter, stock exchange data show the promoters had pledged 40.46% shares, an increase of 1.23% from 39.23% stake in the September quarter.

An analyst from an international brokerage, who did not want to be identified said: “At present, the promoters of real estate promoters are pledging at a margin of three times. Also it is being indicated to the developers that going forward things can tighten and it would increase to 3.5- 4 times.”

DB Realty, unlike other realty firms made most of its profits by selling transfer development rights or TDR in the open market.

DB Realty is also one of the biggest players of TDR along side HDIL in Mumbai. Together, they have an 85% market share in TDR.

DB Realty generated most of the TDR from its Mahul Project.
In the third quarter of this fiscal, it sold 6.5 lakh square feet of TDR for Rs186.6 crore compared to 4.2 lakh square feet a year back for Rs101.2 crore.

In the last nine months, DB Realty has sold 1.4 million square feet of TDR.

“Two quarters back they had said that they will not sell TDR and use that instead for construction purpose but later they sold it citing good value. We think that there is some presssure on them to raise money as they also need to pay around Rs803 crore for the Bandra Government Colony project this month,” said another analyst.

The company has been looking to raise Rs1,200 crore in the project through a stake sale of 20%, which has not materialised yet.

While on the one hand, DB Realty was making profits by selling TDR, the gameplan to profit from the sale of telecom licence was almost a done deal.
A source who had directly worked with the company says: “Though Swan did not start operations they were in talks with Bollywood star Aamir Khan to bring him on board for the marketing the service. Also, the company planned to acquire virtual spectrum from Reliance Communications.”

As per D B Realty’s IPO prospectus, Swan Connect Communications Pvt Ltd had posted losses of Rs 8.5 lakh in 2007, a profit of Rs2.30 crore in fiscal 2008, and Rs 6.9 lakh in fiscal 2009.

The contingent liabilities not provided for and outstanding guarantees as of March 31, 2009, which included performance bank guarantee of Rs 2.5 crore given to the Department of Telecommunications.

Etisalat DB Telecom Pvt Ltd was originally incorporated as Swan Capital Pvt Ltd as a private company on July 13, 2006, under the Companies Act.
The name of the company was changed to Swan Telecom Pvt Ltd and fresh certificate of incorporation was given on February 15, 2007.

Subsequently, the name of the company was changed to Etisalat DB Telecom Pvt Ltd and received a fresh certificate of incorporation on March 12, 2009.
The CBI traced a payment of Rs 214 crore by DB Realty through subsidiaries to Kalaignar TV, owned by the political boss of the then telecom minister A Raja - M Karunanidhi.