Daring Leap of Faith - Sale of Assets

By Ramesh Akkineni
from an article in Livemint by Shabana Hussain
Will the company continue with the prevailing business model of selling assets to DLF Assets Ltd (DAL)?
Yes. We will continue with that. We believe it is a very effective way of monetization. We always look to finance DLF Assets more efficiently and we believe that it can lead to DLF Assets paying somewhat more for the assets of DLF and therefore increasing the profit contribution to DLF shareholders. So, we are in fact actively working on how DLF Assets can be a better customer for DLF.
DLF Assets still needs to pay DLF some money for properties that have changed hands, right?
Out of the total amount of the transaction between DLF and DLF Assets, I would say about 85% would have been paid. 10-15% would be the balance.
How much is that in rupee terms?
A couple of hundred crores would be outstanding which would be paid up by end of September.
In the first quarter results, the company has shown a net profit of Rs2,127 crore. However, the cash from operations is a negative Rs2,270 crore. This is mainly because the company has not yet received money for the sales it has affected to the tune of R1,996 crore. To whom were the sales done? Have you at least got the money now or does the entity still owe you money?
Part of this would be the DLF Assets sale.
You say that is around a few hundred crore.
Yes, subsequently it has been paid up. Partly, it would be on this account. And partly… Not received money... I don’t know. What else can it be? I think it will be mostly on account of DLF Assets, which has been paid up. Today this figure would not be more than a few hundred crore. By end of September (this amount will be) fully paid. But a fresh liability will get created.
DLF Assets has received approvals for further funding of $1 billion from three institutional investors in addition to the $600 million it has received from D.E. Shaw and a Lehman Brothers associate. Who are the investors?
We are talking to investors as we speak. There are a large number of investors who are interested. I don’t know who will finally put in the money.
But I think we will receive the money in September. We are reasonably confident that two to three more high quality investors will join the pool.
How much stake will the investors pick up in DAL?
Stakes will depend on what price ratio we will achieve. In the longer term, I can only say one thing. DLF Assets soon will be a very widely held company with a very strong and independent board and will therefore be transacting all its business with DLF on a more than arms length basis as two independent companies with two independent set of shareholders. There will be a common link between the two (the promoters) but that’s about it.
You have spoken of a listing of DLF Assets either in the domestic or international market?
That may be a possibility. Equity in DLF Assets will stand diluted partly by conversion of all these convertibles and partly by a listing.
Will you retain a majority stake in DAL?
Whether we can remain the majority shareholder or not will depend on the total amount of financing needed.
So, it is not something you are averse to?
I am not averse to it. But one thing: the asset management will remain with DLF at all points of time. DLF Ltd is in complete control of the assets. So the income or the benefit or the appreciation flows to the shareholders of DLF Assets but DLF Ltd is in complete control of the assets or of that entity.
But the ownership moves to DLF Assets?
The ownership moves but not the operating control. That is a very important point. So, in that way it is a very effective financing vehicle if you want to use the word.
I believe in the future of that vehicle. So I would like to maintain as much (stake) as I can. I do hope it will be a majority. It is a bit too early to say this. We will be the largest shareholder, the biggest and the influencing shareholder. Whether the majority or not, lets see.
Do you think you will take a relook at your accounts to see whether a change is needed in the way in which you book your profits in future. Some analysts have pointed out that most of your revenues come from sales to DAL?
We are not. Every real estate company in India and most of them in the world, by most I mean 99% of them sell their assets to everybody. Just because we are choosing to sell a portion of our assets to an entity, which is giving the highest returns to us, should be no cause of any kind of alarm. In fact, if I were sitting in those analysts’ shoes, I would be saying what about selling the balance of your assets (to DAL)?
(Pauses then speaks) Just repeat this question to me after six months.
What will change after six months?
You ask me after six months. I will actually be able to clearly demonstrate to you... I don’t want to make any statements for whatever reasons... I will show you exactly what we achieved by what we did (by selling assets to DAL), for the benefit of the DLF shareholders.

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