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The debt weighs so much on the company that it plans to sell Rs10,000 crore of non-core assets, double of what it had planned earlier

With rising interest rates and high home prices forcing buyers to defer their purchases, the real estate sector has not been in good shape for the past six months. These conditions are not going to change overnight, hence, the outlook for the industry remains sombre.

DLF Ltd, which saw sales decrease during the previous fiscal, faces yet another problem. It had net debt of Rs21,424 crore at the end of March, an increase over the previous fiscal despite some asset sales. The company currently has a net debt-equity ratio of 0.9, one of the highest in the industry, according to calculations by India Infoline Ltd.

The debt weighs so much on the company that it plans to sell Rs10,000 crore of non-core assets, double of what it had planned earlier. It's also scaling down investment and capital expenditure plans in an effort to reduce debt and prevent interest charges from wrecking profit.

While that may help the company reduce its debt, on the flip side, it's an indication that DLF is not doing too well operationally. In the fourth quarter, its net profit declined by 19% from a year ago. Despite a rise in revenue because of a strong showing in the National Capital Region, operating profit fell by 44.7% from a year ago. That was because the company had to take a one-time charge of Rs475 crore in the fourth quarter, mainly on account of higher labour and raw material costs for older projects.

The company's strategy to counter these issues is to sell an increasing proportion of plots--instead of constructed houses that will have associated costs--and lock in some 80% of its construction costs. But will that be enough?

DLF's guidance of a 20% increase in volumes for the current fiscal may not be enough to generate sufficient cash flows to reduce debt, reckon brokerages.

On top of that, the note to accounts shows that the taxman has slapped a notice demanding Rs550 crore more against fiscal 2009 income. This is in addition to a similar demand of Rs1,160 crore a quarter ago.

No provisions have been made for these, even as the company has challenged these orders.

No wonder, investors hammered the stock that fell 4.04% on Wednesday, even as brokerages start cutting earnings estimates.


Source: Live Mint

AryanKB

Rightly said and same thing applies to other builders as well. DLF may be able to sustain but other builders will have tough time.

The correction in RE likely to happen sooner than expected. I think brokers had been able to hold it till date but when they will have run for their own money then the reduction in prices shall be visible.

MANOJa

Yes, almost all Builders r feeling the heat .

It's wait & watch . Could be correction seeping in .

MANOJa

In a significant shift in strategy, DLF plans to sell developed properties, including five IT parks and its hotel business, hoping to mop up 7,000 crore in the next two years and reduce its burgeoning gross debt of 23,990 crore.

India's largest real estate firm's tax dues are also on the rise - touching 1,703.04 crore in the fiscal year 2011. DLF has received an additional tax demand of 546.85 crore from the income tax department in the last quarter of 2010-11, over and above the 1,156.19-crore demand made in the previous quarter, a senior executive in the company told ET on the condition of anonymity.

Last week, the company reported a consolidated net profit of 344.54 crore in the fourth quarter ended March 11, but that included an income of 93.73 crore brought into the books from the earlier years. Net profit in the corresponding quarter of last year was 426.38 crore. Fourth quarter revenues increased to 2,683 crore from 1,994 crore from the year ago period.

Over the last one-and-a-half years, the real estate major had already sold some non-core assets such as hotel sites in Delhi and Hyderabad as well as non-contiguous land parcels to rake in around 3,000 crore. But it has never sold its buildings and other developed assets.

The company said it could sell non-core assets "like certain IT Parks that yields low return". "We are looking at combination of certain assets and underdeveloped non-contiguous land parcels, which are not core to our mid-term strategy," said Ashok Tyagi , DLF group chief financial officer.

The company aims to become debt-free in the medium term. But to reduce its loan components and meet contingent tax obligations that may go up to 1,703 crore, it has almost doubled its fund raising target from divestment of non-core assets, the other senior company executive said.

DLF's original plan was to raise 4,500 crore from sale of non-core assets, but now plans to raise 10,000 crore in the next 2-3 years. With 3,000 crore already in its kitty from sales of non-core assets in the last eighteen months, it is now identifying properties to raise the balance 7,000 crore.

Referring to the fresh tax demand, Tyagi said, "There are various subsidiaries involved in these cases and each of these entities have filed appeal with their competent authorities in different locations. Some of these claims are on income from Special Economic Zones, which we believe are tax-free."

In DLF's luxury hotel chain, Aman Hotel & Resorts, Tyagi said the plan was to divest a majority stake. But the prestigious Aman Delhi (formerly Lodhi Hotel) would not be covered by the stake sale. Investment bankers are expected to get this mandate over the next couple of months.

The five IT Parks included in the list of potential divestment have an aggregate built-up area of over 15 million sq ft. "The company is looking at high net worth individuals and leading IT companies that may be interested," the second person said. The divestment may gain momentum in the current fiscal with higher indicative realisations for ongoing proposals and expected conclusion on some big-ticket items, the second official said.



DLF to sell developed properties - The Economic Times

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DEBT MANAGEMENT

DLF, India’s largest real estate company, will sell its shareholding in two IT SEZs in Pune and Noida, for a combined value of . 1,300 crore, as it steps up the disposal of non-core assets to pay down debt of almost $5 billion. Two partners, Ackruti City and The 3C Company, will also exit.

Blackstone is likely to buy the IT SEZ in Pune for . 900 crore, while a high net worth investor will buy the Noida IT Park for . 400 crore. DLF declined to comment, saying it does not respond to speculation, but a senior executive confirmed the two deals. The transactions have not yet closed.

DLF’s has a 70% stake in each of the two properties. Ackruti City is a co-promoter in the Pune venture, while The 3C Company is a partner in the Noida IT park both with 30% each. Both partners are selling their stakes.
In an email response to a query from ET, a DLF spokesperson said: “We have already outlined our medium-term strategy on unlocking of non-core assets. We have nothing further to add on any specific transaction at this juncture.”
Blackstone declined to comment and Ackruti did not respond to the email sent by ET. 3C could not be reached.

The two sales are in line with DLF’s strategy to divest non-core assets. The company had said last month that it plans to sell developed assets, including IT Parks and its hotels business and raise about . 7,000 crore over the next two years to reduce its debt. DLF’s net debt at the end of March was close to . 24,000 crore.

The DLF-Ackruti IT SEZ in Pune’s Hinjewadi area has a total area of 5 million sq ft of which 1.8 million is currently operational. It has prominent tenants such as Cognizant Technologies, Tata Consultancy Services, Barclays and Novalis.

Another 3.3 million sq ft is under construction at the moment. “The sale will include both leased and under construction portions of the IT SEZ,” said the source. The IT Park in Noida has a total of 1.3 million sq ft with Computer Sciences Corporation as the marquee tenant. The building is currently not fully occupied.

DLF had initially planned to raise . 4,500 crore from sale of its non-core assets. In a recent presentation, it has said that it now plans to raise . 10,000 crore in the next 2-3 years. It has already raised . 3,000 crore over the last 18 months.


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DLF may exit Pune SEZ units - Hindustan Times

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Rajeev Talwar Of DLF Says That 'Real Estate Demand Is Not Softening, It Is Being Suppressed'



Rajeev Talwar, group executive director, DLF, was waiting for feedback on the latest caller tune he was finalising for the company, before starting his interview with Nivedita Mookerji. Once he was happy with the 30-second tune, that anybody calling DLF would hear soon, he spoke at length on the second round of slowdown, corruption in the real estate sector, fund crunch, project delays, valuation issues, and more. Edited excerpts:
Have you sensed any sign of yet another round of economic slowdown?
I think in all sectors you will get this feeling and business results, which will point to a slowdown. This is true for auto sales, tele connections, movement of consumer goods, apparel and possibly of course homes.

So, has there been a slowdown in demand in the real estate sector, including in the residential segment? We keep hearing about the demand falling and price correction, but real estate prices hardly ever dip. Why so?
You must be talking either of 2006-07 or maybe something very close, like right now. 2008 and 2009 definitely saw price correction. There was a slowdown, and India was a part of it. But, India survived, much better perhaps, due to the demographic advantage. What we saw then was because employment was threatened, there was a pull-back in investment and that was reflected in the construction sector.

There was a slowdown in investment followed by execution. We scaled down businesses here in India to some extent, and, therefore, survived the global meltdown much better than the counterparts in the developed countries. This was true for the housing, construction and the engineering industry, too.

Subsequently, people's confidence returned, and there was a rebound in the residential sector. During 2008-09, since execution had slowed down, investment was slow to return, projects were slow to come up, there were some retrieval and a corresponding rise in prices. But even that was lower than the peak level of 2006 and 2007. When India Inc began doing well, companies started looking for office space, new business in outsourcing, thereby increasing the demand for commercial and information technology space. While retail did recover, it did not touch the high peaks of 2006 and 2007.
What about more recent times when real estate demand is said to have dropped?
Over the past one year, the economy has been doing fairly good, which would have shown better results had India undertaken the second wave of reforms. Raising the monetary policy rates may be important to tackle inflation, but many economists now say it is not good to suppress demand. This is what you are seeing now, there's a demand suppression. That is because loans are becoming expensive for a potential buyer.

In the residential segment, demand is not softening, but demand is being suppressed as it is becoming too expensive for the end user. Also, funds for projects are not coming at a more viable rate. Eventually, this is pushed to the consumer.

Are real estate developers still experiencing project delays?
Certainly not. In fact, project completion should be the order of the day. Project delays were a result of scaling down in 2008 and 2009. Today you see a large number of corporate sector giants investing abroad. While it may show the maturity of the sector, at the same time a lot of money is flowing out. There is a serious requirement from the government and federal regulator to find a solution to control inflation, rather than suppress demand.

What is the reason that real estate is perceived, rightly or wrongly, as one of the most corrupt sectors?
I think corruption is a very fashionable word at the moment. Earlier, they used to talk of land banks and then they started talking about carpet area and super area. Today, it is coming in as corruption.

Now, what kind of corruption would you talk about? This is a sector governed by licence raj, which results in lack of transparency. Is that what you are talking about? Or, is it the other fashionable word going around --black money? Or is it the other kind of corruption that people don't understand what is carpet area and what is super area?

There are various kinds of misgivings and myths. In the case of licence raj, it is true that a lot of approvals are required. They could be for safety, town planning or architecture control. It is possible, just as in the manufacturing industry, that many of these controls are done by vague standards. Wherever we try to restrict the number of players, it will lead to some protection, that could result in lack of competition and lack of transparency.

Recently, Reserve bank of India (RBI) issued a warning to developers on over-valuation of properties for loan. Your comment?
I have heard of the RBI's announcements. They quote one case of Samudra Mahal. That one flat has gone for Rs 1 lakh per sq ft. The truth is that these are singular emotional purchases. I think, a single sale does not make the entire industry. If finance comes in more easily, and you could develop more units and increase supply, why would anyone need to overvalue his assets? On one hand you are saying people are over-valuing their assets to take loan, and on the other hand you are saying property rates are going through the roof. There are signs of contradictions, and somewhere RBI needs to do its own study.

Coming to DLF, what are your plans in the luxury residential segment?
We actually tend to provide what can be developed on a piece of property and what will find ready market. Having a pipeline visibility anywhere from five to seven to 10 years, we tend to try and reinvest our earnings in pieces of land which we think will be of value.

We start planning and actually deliver a product over a period of five to seven years. But by that time, the property is actually within which we may call prime locations in any city. And we do set the benchmarks by pure foresight and planning. Whether it is Delhi, Gurgaon, Chandigarh, Kolkata or anywhere else, I think you will find that we manage to think and invest for the long term, thereby giving a much higher return on investment to our customers. I think that is what is called luxury housing.

So, right now when you sell something to the high-end customer, will you call it luxury?
We actually call it the DLF product. Yes, it is a product in a good location, it is well made, the infrastructure remains good and we try and incorporate the best practices.

Will DLF continue with its thrust on plotted development?
The company will continue to focus both on flats and plotted development. There is a section of the population which is heavily committed to plotted development. And we cater to them.

Is DLF planning to get into the renovation of heritage properties like in the case of Delhi's Town Hall?
It is not on our horizon. And, no such opportunity has come our way so far.



Source: Business-standard

MANOJa

DLF stares at Rs 900cr more penalty

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India’s largest developer DLF is selling a 13-acre plot in Gurgaon, Haryana, as part of its plan to ease its debt burden through asset sales. About 1 million square feet of commercial space can be built on the plot, which is expected to fetch Rs 300 crore for the realty firm. DLF is talking to a few large corporates and a high net worth individual. The company is asking for a price of Rs 2,800-3,000 per sq ft. The land is close to the new southern peripheral road in Gurgaon, which will connect national highway 8 with MG Road, Economic Times reported, citing a person close to the situation.

According to an earlier report, DLF is also in the process of selling a 27.4 acre plot of residential land in sector 70A of Gurgaon for Rs 400 crore. “While debt levels have remained similar to the previous quarter, our momentum on the non-core asset/business divestments have gathered pace and these coupled with operational cash flows will help us in moderating our current debt levels,” Ashok Tyagi, group chief financial officer of DLF, had said in the company’s press release while announcing its first quarter results earlier this month. DLF’s net debt increased by Rs 100 crore during the April-June quarter to Rs 21,524 crore.

The firm had said that it plans to sell developed assets, including IT parks and its hotels business as well as hotel plots to raise Rs 7,000 crore over the next two years. The company reported that the money from the sale of non-core assets was Rs 165 crore in April-June quarter. The company is also trying to sell land in other cities such as Hyderabad, Kolkata, and Chennai. DLF has also appointed Goldman Sachs as an advisor to sell Aman Resorts, a luxury hotel chain of 23 hotels across 12 countries it had acquired in November 2007 for $400 million. The company is also trying to sell land in other cities such as Hyderabad, Kolkata, and Chennai.




DLF to Sell 13 Acre Gurgaon Plot for 300cr

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At a time when the Anna wave has enthralled the entire nation, capturing imagination and consciousness of millions of Indians to protest against corruption and injustice, real estate - one of the sectors perhaps most vulnerable to fraudulent practices - is facing the wrath of aggrieved buyers. Encouraged by an order of the Competition Commission of India (CCI) against DLF, the largest realty developer, home buyers hit by project delays and sudden change in building plans are considering legal action either through courts or the CCI.

Lawyers in Delhi, Mumbai, Bangalore and Kolkata have been approached by people whose dream homes remain a distant dream as real estate developers keep postponing projects and missing delivery deadlines. The CCI order has come as a huge boost to those looking for relief as some have decided to move the courts or the CCI, while some others are weighing the options, said lawyers. Law firms have started receiving queries from consumers on how they could seek intervention of the CCI against developers.

The competition watchdog on Tuesday slapped a penalty of 630 crore on DLF for taking undue advantage of its dominant position in the market. The commission found DLF guilty of commencement of residential project The Belaire in Haryana’s Gurgaon without approvals, increasing the number of floors mid-way through the project, delay in project completion, and forfeiture of booking amount of some buyers.

Customers at Kolkata West International City, an integrated township project spread over 400 acres in the capital of West Bengal, are thinking of approaching the CCI, as the project is far behind its delivery timeline. Even the first phase of the project, scheduled to be delivered in 2008, is yet to be completed.

“We did not move court till now because we did not want to get into legal complications. Not even consumer court because the flats are not yet ready. Some of us who have been given possession letter have approached consumer court but a verdict is yet to be out. On the contrary, we have approached West Bengal government seeking their intervention in the subject. Now, we and our lawyers plan and take a call on approaching CCI in a week’s time,” said KWIC Buyer’s Welfare Association president Abhay Upadhyay. The project, which is a mix of housing and commercial establishments, is being developed by the Salim Group of Indonesia and the Universal Success Group of Singapore, with support from the Kolkata Metropolitan Development Authority.

In a similar such instance, a home buyer Shahnawaz Deriya, along with a group of customers at residential project Sagar City in Andheri suburb of Mumbai, has been fighting for over a year against the builder Cordcon Constructions for delay in delivery for four years. The group has already filed a case in the State Consumer Court, but is now seeking legal opinion to get the intervention of the CCI against the developer. “Yes, we are handling few inquiries that have come after the CCI’s order on DLF,” said H Jayesh, Founder & Partner at law firm Juris Corp.



Delay Hit Home Buyers to Take Legal Action against DLF after CCI Order