Almost 40% of DLFs profits are accounted for by sales to DLF Assets. DLF Assets has raised almost $1billion from PE investors DE Shaw, Symphony Capital and Lehman Brothers, promising them higher valuations by listing on the Singapore exchange due to yield compressions. However, due to the failue, DLF Assets had to be bailed out by the promoters by infusing an additional equity of Rs50 crore into DLF Assets and giving the company an interest-free loan of Rs1,150 crore for an indefinite period.
DLF sold around Rs1,557 crore worth of properties to DLF Assets in the quarter ended June. The sales are part of a business model in which the company monetizes its assets by selling them to the affiliate, also owned by the family of chairman K.P. Singh. However, only Rs111 crore of payment was received in quater ending June and Rs3,382 crores of payment is still outstanding.
Since its founding, DLF Assets had bought assets worth Rs7,500 crore from DLF as of the year ended March. In the same period, it paid DLF Rs4,338 crore for these assets. Some of that money came from the sale of stakes in DLF Assets to foreign funds.
Share performance
DLF’s shares closed at Rs520.15 each on the BSE on Friday, 0.92% lower than the issue price of Rs525 and 57.53% lower than the peak of Rs1,225 seen on 15 January.
Since January this year, the exchange’s benchmark Sensex index has fallen 27.80%, but its realty index plunged 60.12%, as a 13-year high inflation prompted the Reserve Bank of India to raise interest rates. Demand for apartments and houses has slowed as consumers, deterred by more expensive credit, deferred purchases.
For more on DLF Assets and DLF, read on my blog -
DLF Assets puts REIT listing on hold
DLF Buyback : How is it shaping up
DLF Buyback desperate attemp to floor share price
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The rising bad loans are set to pose a huge challenge in the next few years for the banking and finance industry. Banks have already stopped or tightened lending norms for consumer finance and auto loans for fear of higher defaults. Rising interest rates have increased the possibilities of defaults, particularly among customers holding credit cards.Analysts say bad loans will be a major challenge for domestic banks even as regulators prepare to ease restrictions on foreign banks operating in India in 2009.Reserve Bank of India has no choice but to hike rates if inflation is at 12% and that will be a problem because if people have taken a loan of Rs 50 lakhs and paying 7% interest two years ago, now they are paying 14% which means paying double the interest now. This in turn, would lead to lesser number of people defaulting on their home loans in India because, unlike the US, the home-loans market in India is a “user’s market.For more view- realtydigest.blogspot.com
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