Rashmi

Real Estate major DLF has chalked out plans to issue commercial papers and bonds to replace a part of its existing Rs 7,400-crore debt.

This move is likely to help the company reduce its cost of borrowing by 3-4%, analysts tracking the real estate sector said. The company’s average cost of borrowing is currently in the range of 10-11%. The process will start in the current quarter. First, the company will get its debt rated and then take a call on floating short term commercial papers and bonds, the first of which is likely to hit the market in the third quarter of the current financial year.
Interestingly, the company may not use much of the funds raised through its maiden public issue, around Rs 9,200 crore, to retire existing debts.

Of its total debt of Rs 7,400 crore, almost Rs 6,000 crore is of medium- to long-term nature. Short-term debts are typically of six-month duration. Company executives also indicated that bonds or commercial papers may also be used to fund a part of its future projects with large capital outlay. DLF recently announced some big-ticket projects including setting up of a Rs 6,000-crore convention centre at Dwarka in Delhi. Over the next one year high in the company’s agenda is acquisition of land for SEZs, launching middle-income housing projects across the country and development of hotel properties.

The group’s SEZ projects, with large capital outlay, are expected to take off in 2008 with delivery schedule spread over two to three years. Further, the group has chalked out plans to invest around Rs 10,000 crore annually in various projects across verticals such as retail, residential, commercial, hospitality, and SEZs in the next few years. However, company executives indicated that bulk of this investment (over 80%) would be funded through internal accruals, keeping the debt portion low.

Over the past one year or so RBI has been tightening the credit flow to the real estate sector. This has forced many real estate companies to tap the capital market to finance its on going projects.

Economic Times dated 01 Aug-07