DLF investors to gain from Caraf, Cybercity integration

DLF investors to gain from Caraf, Cybercity integration
The Financial Express, December 17, 2009, Page 6

Rajat Guha, New Delhi

Shareholders of the country’s largest realtor DLF would eventually stand to gain as the integration of Caraf Builders, a 100% promoter-owned company and DLF-owned DLF Cybercity would immediately add to its earning per share. The integration between the two entities is set to be completed by January-end.

However, DLF’s gross debt would eventually increase by Rs 2,300 crore, Rs 1,600 from DAL and Rs 700 crore from Caraf Builders would be consolidated on to DLF’s balance sheet. Caraf Builders is the holding company of DAL, which buys commercial assets from DLF and lets them out on rent.

The DLF board on Tuesday evening approved to integrate, including by way of merger/amalgamation of DLF Cyber City Developers with Caraf Builders & Constructions, the holding company of DLF Assets (DAL), set up by group promoter KP Singh. “The debt that would be transferred is a self funding one as it was raised through lease rental discounting. So a portion of the DAL’s lease income would be automatically used to pay off the debt and that the rest would come to DLF by a ratio of 60% economic interest in the merged entity,” Saurabh Chawla, executive director finance at DLF Group said.

DLF has already sold off Rs 10,500 crore worth of rent yielding properties to DAL and has received Rs 7,800 crore, of which DAL has paid Rs 2,800 crore as advance to DLF. The rest Rs 2,700 crore is due in the next three years and so there is no immediate burden on DLF’s books.

Chawla added that the finer contours of the merger would be deliberated over the next few days and would include the exact ratio in which DLF Cyber City and DAL would exchange shares.

The valuation ratio accepts the relative valuation of Cyber City and Caraf in the ratio of 60:40. Consequently, the company would have an economic interest in the integrated entity of 60% with the residual 40% being held by the Caraf shareholders.

The DLF promoters had invested in DAL through Caraf and DAL was set up to buy commercial properties of DLF. Consolidation would help the group's rental assets under DLF to further enhance the stable rental income and cash flows of the company.

The DLF-DAL integration has also set the ground for lisiting DAL as real estate investment trust in Singapore exchange, which is likely in May 2010.

Last week, KP Singh and family had bought the shares owned by DE Shaw, a leading hedge fund, for $470 million in DAL. The hedge fund had invested $400 million in 2006.

DLF Cyber City is the largest subsidiary of DLF that contributes a quarter of the group’s net profit and a fifth of its revenues. For the financial year ended March, DLF Cybercity reported a net profit of Rs 1,102 crore on revenues of Rs 1,442 crore, a net profit margin of 76%.