Ever since DLF’s dealings with firms promoted by Sonia Gandhi‘s son-in-law Robert Vadra hit the headlines, investors have hammered the realtor’s stock as a corporate governance issue – something the markets frown upon.
DLF’s credibility and stock price saw an erosion like never before. On Thursday, the stock was up nearly 1 percent at Rs 204.80.
The timing of this political storm could not have been worse. After roping in Lodha to buy its NTC Mill land in Mumbai, the real estate player was hoping to see better times, with anticipated interest rate cuts and foreign direct investment in retail being seen as triggers for real estate demand.
DLF is a highly leveraged with debt levels of Rs 22,680 crore as of June 2012 against annual sales of around Rs 10,000 crore. DLF’s core business is not generating enough cash to meet its debt obligations, which is why it is imperative that the company sell its non-core assets to reduce its debt levels.
Brokerages have turned bearish on the stock over the last month as they are concerned that DLF may not be able to sell its assets if the current controversy drags on.
However, according to a report in The Economic Times, DLF has successfully completed the divestiture of its NTC mill land in favour of Lodha Group after the latter paid the balance Rs 725 crore as the final tranche of the equity portion to DLF as part of the nearly Rs 2,725-crore transaction. Lodha had earlier paid Rs 500 crore as initial payment on a non-refundable basis, with a commitment to pay the balance by October end.
“Though DLF had concluded this transaction, the Street has been skeptical of the deal going through due to doubts on the buyer’s ability to fund the transaction,” said Edelweiss in a note today.
Even though DLF is yet to confirm the development, the brokerage has viewed the move as a significant positive as DLF is currently saddled with significant debt, reduction of which is crucial for a sustained stock performance.
In June this year, DLF divested its stake in subsidiary Adone Hotels and Hospitality for Rs 567 crore. There are more sell-offs in the offing, such as luxury hotel chain Aman Resorts, and windmill units in Gujarat, Karnataka, Rajasthan and Tamil Nadu. But since DLF is in the spotlight for all the wrong reasons, India’s largest developer won’t find further divestitures easy – since buyers may drive a hard bargain.