DLF and Unitech have indefintiely postponed their REIT (Singapore) listing unnerved by withering global equity markets,until market conditions improve, in turn increasing pressure on them to find alternative means to fund projects. Unitech and DLF were planning to raise between $700 and $1 billion from the IPO. What has put this pressure on them?
To give some background, DLF Assets was formed by DLF to bid for commercial properties that could be put up for sale by DLF. Sales to DLF Assets accounted for 40% of DLF’s profit in the year ended in March. DLF Assets bought Rs7,500 crore of properties from DLF in the hope that it would raise $1bn from the Singapore REIT listing. DLF has sold 20 mn sq. ft of office space to DLF Assets, both completed office space and on-going construction projects
DLF Assets has raised over $1bn from 3 investors through PE placements - DE Shaw, Symphony Capital and Lehman Brothers. These investors would have been promised higher valuations when DLF Assets would list its REIT given the "yield compression" benefits that exist between the Indian and Singapore markets.
To explain, yield compressions, suppose in India the yield is 10%, and the rental value of the assets are $100mn, then the value of the company is $1bn. Now if the same company is listed on Singapore where the yields are lower, say 5%, the company would be valued at $2bn. This higher valuation was what attracted the PE firms to invest in DLF Assets.
However, DLF Assets could not list due to poor market conditions. DLF Assets has to repay DLF for the properties that it has bought from them and hence had to be bailed out by the promoters who gave an interest free loan of Rs1,100 crore to allow it to pay back to DLF.
Given the poor listings of the new companies in Singapore and the pessimist sentiment of investors and analysts, it looks unlikely that DLF would be able to go for a Singapore listing. It will have to look at new avenues to raise capital to bail out DLF Assets.
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