By 23 March, 2009

India's largest real estate firm DLF is merging its subsidiary DLF Assets (DAL) with itself. US-based hedge fund DE Shaw, who invested $400 million in DAL in 2007, will be exiting in this merger, reports Business Standard. DAL will be given an enterprise valuation of Rs 7,000 crore, , which includes both equity and debt.

DLF plans to raise Rs 2,500 crore debt, most of which will be used to repay DE Shaw. DAL bought four special economic zones (SEZ) from DLF and plans to mortgage the receivables from lease rentals in these SEZs. The lease income is currently Rs 325 crore and are expected to reach Rs 600 crore by 2009-10.

The realty giant had raised a total sum of $1.1 billion from DE Shaw, Lehman Brothers and Symphony Capital through optionally convertible preference shares with a coupon rate of 4-6%. Symphony Capital bought Lehman's stake in DLF last year after the New York-based investment bank collapsed.

DE Shaw was promised an exit in two years through an IPO, which is not possible in the current market. Besides, hedge funds around the world are facing redemption pressures. Symphony Capital's investment will mature in 2012.

DE Shaw's other real estate investments include $250 million in Mack Star Marketing, a subsidiary of realty firm HDIL.

DAL was also in talks with private equity funds to raise more money by March end. But that does not seem to be happening now and the realty firm is looking at this merger to end its woes. It was planning to raise $450 million and was reported to be in talks with UAE's Taib Bank, the Blackstone group, TPG and JP Morgan.

DAL was planning to list as a real estate investment trust in Singapore last year, a plan which failed due to meltdown. DAL owes around Rs 5,500 crore to DLF on account of assets that it has bought from the parent company. DAL's equity value is expected to be as low as Rs 100 crore due to depericiation in value.

DLF Assets has appointed Citibank, Ernst & Young and Grant Thornton India to advise on the deal.

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