DAL to merge with DLF in cash-equity deal

DAL to merge with DLF in cash-equity deal
The Financial Express, December 14, 2009, Page 1

Rajat Guha, New Delhi

Country’s largest real estate firm DLF is set to merge the real estate investment trust DLF Assets Ltd (DAL) into itself. The move is aimed at repaying some of DAL’s debt and bring the commercial properties under DLF to generate an annual income of around Rs 600 crore in the form of lease rentals from 2009-10. DAL currently earns around Rs 325 crore from lease rentals.

DAL, which is promoted by DLF promoters K P Singh and son Rajeev Singh, buys commercial property from DLF and collects lease rentals from it. Sources said for the merger, DLF would have to buy the assets of DAL for around Rs 6,500-7,000 crore. The DLF board is meeting on Tuesday to take a final call on the matter. The company has appointed Citibank, Ernst & Young and Grant Thornton India as advisors. When contacted a DLF spokesperson declined to comment.

The DLF-DAL deal will be a combination of cash and equity. Sources close to the development said an all-cash deal would involve a tremendous cash outgo, which would be difficult for DLF in the current scenario given its debt burden. Hence, the promoters are planning to go in for a major share swap between DLF’s cyber city in Gurgaon and DAL. The share swap ratio has been finalised and would be discussed in the Tuesday’s board meeting. In addition, around $700 million invested by the PE firm Symphony Capital and some debt from other lenders will be transferred to DLF Ltd’s books.

Analysts view the option of equity-cash mix an ideal way to close the deal as it is not prudent on the part of promoters to further dilute their stake in DLF. The Singh family had last diluted its stake by around 10% in DLF to raise Rs 3,800 crore to pay hedge fund DE Shaw, an initial investor in DAL.

The DLF-DAL merger would also help scale up DAL’s valuation ahead of its listing on Singapore Stock Exchange in April 2010. As fist reported by FE, the promoters expect to mop up around $1.2 billion through the listing for which the backing of DLF is seen as a must.

The company has decided to file for the listing in January. Citibank is advising the company on the listing.

DAL had acquired four special economic zones (SEZs) from DLF Ltd with a built-up area of 4.5 million square ft, and has increased it to 9.5 million sqft and plan to further increase it to 19 million sqft when fully ready. As reported by FE last week, DE Shaw has finally redeemed its investment in DAL, with DLF buying out its stake, a move that would facilitate the merger process and the eventual listing.

DAL had earlier raised $1.1 billion from DE Shaw and Symphony Capital through optionally convertible preference shares with a coupon rate of 4 to 6 %.