RBI's 25 basis point repo and CRR cut failed to cheer the real estate sector. Developer’s dashed hopes of a cut in property prices. Then the realty index was up 1.3 percent this week. The biggest gainer was Parshwanath, it was up 9.8 percent. The biggest loser was HDIL, it was down nearly six percent. Lastly DLF finally got rid of its wind business. The stock saw action as the company geared up to raise a whopping USD one billion over the next two years
Real estate giant DLF was in the news this week after selling off ultra-luxury chain Aman Resorts and a prime 18 acre land parcel in Mumbai for a combined Rs 4,400 crore. Last year, it divested part of its wind business for Rs 282 crore on January 31. Bharat Light and Power promoted by the former head of GE India, TP Chopra was the buyer.
The second leg of this transaction is likely to be concluded for Rs 800 crore. This will help DLF meet its guidance of raising Rs 5,500 crore from the sale of non-core assets. DLF may also look at a mega fund raising plan of USD one billion spread over two years. The promoters won’t sell shares but the company’s fresh share equity will help it meet the SEBI guideline of a minimum 25 percent public shareholding.
Ashok Tyagi, Group CFO, DLF says, "we began the internal brainstorming and the planning process for that. We do need to abide by the SEBI deadlines of June. So sometime I would say it will obviously take us a few weeks to be able to prepare ourselves. However, by the end of May we should be hopefully able to take the necessary capital action to meet the SEBI deadlines".
Second run of dilution will be necessary when promoters convert the compulsory convertible preference shares in DLF subsidiary, DLF Cyber City Developers. The deadline for which is March 2015. This could help DLF raise another USD 500 million approximately.
"I think that is speculative right now because the promoters have a time till March 2015 to convert those compulsory convertible preference shares. Then we will have to decide what the future direction of that conversion would be. So, I think we have time at least till March 2015 to plan out the exact blueprint around that with the promoters. Right now, any comment on that would be speculative", Tyagi says.
He adds, "one expects that the growth in pricing will be far more moderate going forward. However, I have always maintained that. There is no big time correction that is out in the offering. That at least one doesn’t see because (a) the pace of approval is choking up the supply in many key pockets, (b) the prices of inputs continue to go up. So, there is very limited leeway in terms of a significant price correction. However, yes in select pockets, it could be there. The pace of price increase would clearly continue to be moderate".
While fund raising is on the anvil, a correction in property prices is unlikely. DLF believes that 25 basis point cuts in repo and CRR are too small and will not lower EMIs or help in picking up demand. So, the RBI action will have no impact, but what’s DLF’s overall outlook for property prices in 2013.