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Divestitures: Corporates’ Plan B For Fund Raising

31 March, 2009

In a tightening liquidity environment with both debt and equity funding hard to come by, India’s real estate and infrastructure conglomerates have started divesting their non-core assets in order to raise much needed cash.

India’s largest real estate firm DLF Ltd has decided to put its wind power generation business on the block. The company is looking at windmill as its non-core business and plans to raise funds for core businesses through a sale, reports Business Standard. The realty firm will look at selling the windmill business, which has installed capacity of around 260 MW, after it completes the merger with its subsidiary DLF Assets (DAL).

Recently an Ernst & Young survey said that globally 53% of deal doers are more likely to consider divestments due to current economic events to focus on core business. Also corporates dont have any excess cash to invest in non-core businesses.

DLF invested Rs 1,500 crore in the windmill business, and is expecting an exit valuation of Rs 1,100 crore after taking a significant depreciation claim. It was in talks with private equity funds for a sale which broke down due to differences over valuation. DLF is also merging its subsidiary DAL with itself in a deal in which hedge fund DE Shaw, who invested $400 million in DAL in 2007, will be exiting. This deal is expected to be closed by the first week of April.

Another recent example is Bangalore based GMR Group, which has exited its ferro alloys business to focus on its core infrastructure business. It sold its ferro alloys business to Dubai-based Cronimet Mercon Invest for Rs 22 crore. GMR is also selling a 30% stake in its sugar business, reportedly to an MNC food company Bunge, which could fetch enterprise value of between Rs 600-800 crore, reported Economic Times on Monday. It is also open to sell a small stake in its Indian Premier League (IPL) franchise, Delhi Daredevils.

In a similar example, Unitech has also sold its stake in Bhubaneshwar-based Orissa Sponge Iron & Steel, while it has also sold an hotel property in Gurgaon in Haryana.


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Divestitures: Corporates’ Plan B For Fund Raising

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