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GIC picking up 33% stake in DLF’s rental biz arm for $1.39 bn

26 August, 2017

In the biggest-ever private equity deal in Indian real estate, developer DLF Ltd has agreed to sell a 33.34% stake in its rental arm, DLF Cyber City Developers Ltd (DCCDL), to Singapore’s sovereign wealth fund GIC for Rs 8,900 crore ($1.39 billion), it said in a statement to the exchanges.

VCCircle was first to report way back in 2015 that though DLF was in negotiations with a host of investors, GIC and Blackstone had emerged as front-runners.

The deal is structured in a way that it implies an enterprise value of Rs 35,617 crore for DCCDL, translating into an equity value of approximately Rs 30,200 crore. “Post completion of series of steps as contemplated in the transaction, DLF shall hold 66.66% equity shares (up from 60% on a fully-diluted basis earlier) and Reco Diamond, a subsidiary of GIC, shall hold 33.34% equity shares in DCCDL,” the statement said.

“The gross proceeds to the sellers from the transaction would be approximately Rs 11,900 crore, which includes secondary sale of equity shares (post conversion of compulsorily convertible preference shares) to Reco Diamond for Rs 8,900 crore approximately and two buybacks of CCPS by DCCDL for Rs 3,000 crore,” it added.

The first buyback of preference shares by DLF will be completed before the GIC deal is concluded, and the other will be closed 12 months thereafter.

JPMorgan Chase & Co. and Morgan Stanley were financial advisers to DLF, and EY was the transaction advisor.

The development comes almost five months after DLF signed an exclusivity agreement with GIC for the deal. The sovereign fund beat alternative asset managers Brookfield and Blackstone, Canada Pension Plan Investment Board, and Abu Dhabi Investment Authority to clinch the deal.

The promoters will pump the proceeds back into the parent company to pare debt. The capital injection could be in the form of non-convertible debentures or redeemable preference shares. However, the company is yet to provide clarity on this.

Over the years, DLF has taken a slew of measures to cut debt. It has divested a slew of non-core assets, including land bank, luxury hotels, insurance venture stake, movie theatre chain and wind power business, and also raised capital through an institutional placement programme and mortgage-backed securities, but it still has a big debt pile to worry about.

Overall debt stood at Rs 25,898 crore in the first quarter of financial year 2018, up from Rs 25,096 crore in the previous quarter.

The company added that the expected consideration in the hands of the promoters will be over Rs 10,000 crore. “A substantial portion of the said amounts will be invested in the company. The company will take all required steps to ensure that the minimum public shareholding norms as stipulated in the Listing Regulations are complied with,” it said.

DLF promoters currently hold almost 75% stake in the company, the maximum permissible limit.

One of the leading rental asset platforms in the country, DLF Cyber City Developers has rent-yielding assets of 26.9 million square feet. It currently has an under-development pipeline of approximately 2.5 million square feet, with a further development potential of approximately 19 million square feet.

The development comes at a time when rent-yielding assets in the country are enjoying a smooth ride even as residential properties find it tough to attract buyers. Given the momentum in the commercial segment on the back of strong leasing, many global and domestic investors have shown interest in taking exposure.

According to a recent report by consultancy firm CBRE, 2016 was a landmark year for the sector with record absorption levels of over 43 million square feet, indicating 9% year-on-year growth. It added that the high absorption levels and global investor interest will continue to breathe life into India’s commercial real estate in 2017.

Some major developers with a substantial presence in office and retail segments are exploring talks with global biggies for strategic tie-ups. Bangalore-based RMZ Corp is in talks with CPPIB and Qatar Investment Authority to raise as much as $1 billion. The fundraise will help the developer expand its office rental portfolio from 21 million square feet to 60 million square feet in five years.

Bangalore-based Prestige Estate Projects is also looking to raise a mega round by diluting stakes across its commercial and retail portfolios.

Besides, a bunch of developers has gone ahead with platform deals to ramp up their commercial and retail portfolios.

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GIC picking up 33% stake in DLF’s rental biz arm for $1.39 bn

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