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DLF Ltd. (DLFU), India’s largest real estate company, is planning “significant” property development around New Delhi after selling a stake in the Aman luxury hotel chain as it seeks to contain the industry’s biggest debt.
The company will accelerate projects around the nation’s capital in the next three to four months, said Senior Executive Director Sriram Khattar. DLF sold its stake in Silverlink Resorts Ltd., the holding company for Aman Resorts, which runs hotels such as Amanwana, made famous after late Princess Diana visited the secluded property located close to the Tambora volcano in Indonesia’s Sumbawa province.
DLF, controlled by billionaire Chairman Kushal Pal Singh, 81, is refocusing on real estate after running up 250.7 billion rupees ($4.6 billion) of debt to fund his expansion into hotels, wind farms and running export processing zones. The transaction this week will help the company achieve its plan to cut debt by 26 percent and attract investors, said Aashiesh Agarwaal, an analyst with Edelweiss Financial Services Ltd. in Mumbai.
“With the hotels business by and large out of the fold, the concentration is to look at growth and look at launches and the exploitation of the real estate assets,” Khattar said in an interview. As interest rates drop and sentiment improves “we will be well positioned to benefit,” he said.
DLF is the third-worst performing stock in the BSE Realty Index. (BSEREAL) The shares rose 0.4 percent to 226.85 rupees at 10:08 a.m. in Mumbai and are trading 57 percent below its initial public offering price.
DLF raised 91.9 billion rupees in the initial share sale in June 2007 selling shares at 525 rupees apiece. In November that year the company, spent $400 million including $150 million of debt, to partner Aman Resorts founder Adrian Zecha to buy a controlling stake in the chain that has luxury properties from the U.S. to Indonesia. It sold it for $300 million including debt, according to an exchange filing.
Lee Hing Development Ltd., a Hong Kong real estate developer, in 2007 sold its stake in the resort for $105 million after purchasing a majority stake in 2000 for $102.1 million. The chain was ranked among the top 10 Asian hotel brands, according to a survey by the Brand Company.
Chairman Singh, who’s net worth is estimated to be $6.4 billion, according to the Bloomberg Billionaires Index, also set up a venture with Hilton Hotels Corp. to build 75 hotels in the South Asian nation.
In December 2011, DLF bought control of the venture with Hilton and sold its hotel unit Adone Hotels and Hospitality Ltd. for 5.67 billion rupees to a Kolkata-based group. Adone holds land parcels in Chennai, Mysore, Kolkata and Thiruvananthapuram in Kerala.
DLF may also raise 9 billion rupees selling its wind farms, according to Agarwaal.
The company that’s developed upscale south Delhi localities including Greater Kailash, Hauz Khas and South Extension, reported its worst first-half sales volume in five years in the six months ended Sept. 30, Mumbai-based Bhaskar Chakraborty, an analyst at broker IIFL Ltd. said in a note to clients after its earnings on Nov. 15. DLF sold less than 3 million square feet, he said.
Gurgaon, India-based DLF has raised 50 billion rupees selling assets it had acquired following its IPO. Cutting debt that’s more than the combined obligations of its 13 nearest rivals will help the New Delhi-based company prepare for an increase in demand as borrowing costs fall.
India’s central bank Governor Duvvuri Subbarao signaled higher odds of an interest rate cut on Dec. 18 after keeping rates on hold since April in Asia’s third-largest economy.
The company, set up in 1946 as Delhi Land & Finance Pvt., plans to build homes and sell as much as 30 billion rupees of realty by March 31, Ashok Tyagi, group chief financial officer, said on a conference call with analysts on Nov. 14. Gurgaon, south of New Delhi, will be the “sales engine,” he said.
“Over the past two years, DLF has focused on low-value plot sales to combat inflationary risk and delay in government approvals,” Param Desai, an analyst with Nirmal Bang Institutional Equities said in a note to clients on Dec. 19. “Going forward, the management has renewed its focus to launch high-value projects which will ensue higher pre-sales.”
DLF’s turnaround is predicated on lower interest payments after it achieves asset sales of 50 billion rupees in the year ending March 31, IIFL’s Chakraborty said. Marquee developments in Gurgaon would help create visibility of cash flows over the next two years, he said.
“Important areas to watch out for in 2013 for residential realty will be New Gurgaon and Manesar,” said Santhosh Kumar, chief executive officer of operations at Jones Lang LaSalle India. “The increase in commercial developments and the proposed connectivity via Metro rail and the expressway will put this region on radar in 2013.”
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