No suitor for Aman Resorts yet: DLF's debt-reduction plan in trouble?

Last week, India’s largest realtor DLF walked out of an exclusivepact to negotiate sale of its luxury hotel chain Aman Resorts with Indonesian hotelier Adrian Zecha. Both had set June 2013 as the deadline to conclude the $300-million deal that was agreed upon last year.

Now, a slowing economy and tighter liquidity situation are likely to pull down the price of the property, putting a question mark over the Indian company’s ability to meet its debt reduction target.

In December 2012, DLF had announced the deal with Zecha, the founder of Aman Resorts, for an estimated $300 million and expected the transaction to close by February 2013. Zecha missed the February deadline due to insufficient funds and exclusivity period was extended until June end. Butwith no sight of the deal closing, DLF walked out of the exclusive pact with Zecha.

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A report in today’s Economic Times says DLF is now in talks with several private equity investors like Blackstone and Carlye as well as international hotel operators for the sale of Aman Resorts.

[caption id=“attachment_993277” align=“alignleft” width=“380”] Reuters[/caption]

But finding a suitor in a slowing economy will be a tall task.

“High leverage and mounting interest costs combined with tough macro, slowing demand, and the possibility of tighter liquidity pose significant downside risks to DLF,” Citigroup said in a note on Thursday.

The investment bank downgraded DLF to sell from neutral and said DLF would need a “rapid” resolution to its debt burden to preserve equity value over the medium term.

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To reduce debt and focus on the core realty business, DLF has been selling its non-core assets. The company has raised about Rs 10,000 crore in the last three years through divestment of its non-core assets.Sale of Aman Resorts is crucial to this debt reduction strategy as the company had expected the debt to come down to Rs 18,500 crore by the end of March 2013 and the closure of this deal was expected to bring in around Rs 1,600 crore to the company.But now it may have to revise its debt target if it is not able to find a new suitor soon.

On Friday, DLF sold 74 percent stake in its life insurance joint venture with Prudential International Insurance Holdings Ltd (PIIHL) to Dewan Housing Finance Corporation Ltd (DHFL) reportedlyfor over Rs 350 croreas part of its plan to get rid of non-core assets and pare its debt.It has already exited the wind energy business by raising around Rs 360 crore from the sale of these assets.

According to a report in the Business Standard, DLF now has a debt of around Rs 20,000 crore . While the company paid an interest of Rs 2,314 crore on its loans, the recent sales are barely enough to repay the interest component, forget reducing its debt from the balance sheet, the report said.

Add to that a lull in real estate sales. In the March quarter, DLF posted its first ever quarterlynet loss of Rs 4.2 crore ashome sales in the area around NCR, DLF’s main market, fell 18 percent in the quarter ended March. This quarter is no better.

According to Mumbai-based property data analysis firm Liases Foras, home sales in NCR fell 13 percent during the June quarter.

The outlook looks bleak and the company needs large scale land parcel sales like its sale of the 17-acreprime land in Mumbai to Lodha for Rs2,725 crore in November last year.