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DLF owners to buy out DE Shaw in arm

The founding family of India’s largest real estate company has reached a deal with DE Shaw to buy out the hedge fund’s stake in DLF Asset (DAL), an important step presaging transactions that could lead to a Singapore listing for the DLF affiliate in the first quarter of 2010.

DE Shaw will get a little less than $500 million from KP Singh and his family and privately-held DAL will most likely become a majority-owned subsidiary of listed property developer DLF, two persons directly involved in the transaction said.

DAL, which buys completed commercial assets from DLF, was set up as a Real Estate Investment Trust (REIT) controlled by the Singh family. A Singapore listing for DAL, which was to have happened in 2008, was shelved following the crash in the global equity markets.

The integration of DAL with DLF, which is expected to be completed by December, is being done to give the property developer access to the former’s revenue stream.

KP Singh and his family have bought DE Shaw’s minority stake for around Rs 2,300 crore ($500 million). The hedge fund had invested $400 million, equivalent to Rs 1,600 crore, in early 2006.

Cash-strapped DLF, whose sales fell by over 50% to Rs 1,810 crore during the quarter ended September, has set itself a target of nearly halving debt to Rs 6,500 crore this fiscal year. Revenue from DAL, which at one time accounted for over a third of DLF's sales, has dried up.

DLF expects to get Rs 4,500 crore through the sale of non-core assets and has already raised Rs 1,064 crore in the first half of the current fiscal.

DLF has been working on the integration of DAL with itself for some time, a person with knowledge of the development said, adding the valuation will depend on the report of a panel of independent directors.

A DLF spokesman said the company “does not comment on market speculations.”

Since 2006, DAL had acquired commercial assets valued at over Rs 11,000 crore from DLF. It has raised some Rs 5,000 crore ($1.05 billion) from hedge funds and owes DLF around Rs 2,000 crore.
In May, the Singh family mopped up Rs 3,800 crore by divesting a 9.9% stake in DLF to buy out the investment by DE Shaw. But the deal got delayed due to tax hitch:
 since DAL was not a listed entity, the hedge fund was required to pay capital gain tax on the profit. This issue has now been resolved.

After the exit of DE Shaw, a DLF subsidiary will finalise the purchase of the promoters' entire holding in DAL through a complex share swap deal. The deal is being routed through a subsidiary as the promoter holding in DLF is above 75% and any issue of fresh shares to promoters is not allowed under listing norms. This effectively means that DLF will issue fresh shares of its subsidiary to the Singh family, said one of the officials.

A source said that the value of DAL would be around Rs 9,000 crore. After adjusting for DAL's liability to DLF, loans from banks and the investment by Symphony Capital in the form of preference shares, the net value would be around Rs 2500 crore against which the shares of a subsidiary company will be issued to the Singh family.

London-based hedge fund Symphony Capital has invested $650 million in DAL through convertible preference share in two phases.

The company has started discussions with overseas investment banks for DAL's Singapore listing, a banker said.
Source: Economic Times

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