DLF-GIC a done deal, cash likely to come in by Q2FY18: DLF's CFO

One of the largest realty developer DLF has entered into an exclusive pact with the Singapore-based private equity firm GIC to sell 40 percent stake in the company's rental arm DCCDL. The documentation work for the deal will take 2-3 months, said Ashok Tyagi, DLF’s Chief Financial Officer. Post the documentation, another 5-6 months will be needed to get all the regulatory approvals in place. If all goes on time, DLF is likely to get the money from the deal in second quarter of the next fiscal, Tyagi said. The deal will give DLF a partner to expand its commercial renting business, improve its credibility and help it to fundamentally restructure its debt-laden balance sheet. The company is also discussing all the ways in which the money can come back into the company. Once the transaction is complete, the debt will come down substantially, Tyagi said. DLF and GIC could also consider Real Estate Investment Trust (RIETs) in future. Tyagi further said if REITs are done, it won’t be to reduce debt, but to gather money for future growth.CNBC-TV18 had put out a source-based news of the deal on Wednesday morning with stake sale expected at fetch Rs 12,000-14,000 crore.Below is the verbatim transcript of Ashok Tyagi's interview to Prashant Nair, Nisha Poddar and Timsy Jaipuria on CNBC-TV18.Timsy: The closed door meeting of the audit committee decided to sell the 40 percent stake in the rental arm business to GIC. If you could just throw some light initially on what happened inside and what is now the roadmap to conclude the deal?A: So if I want to take you back in October 2015, the DLF board empowered the audit committee comprising of independent directors solely to basically find the right solution to resolving this entire issue of promoters’ holding 40 percent CCPS in DLF Cyber City Developers Limited and the rationale decision was that the promoters should ideally sell it to a mutually agreed third party institutional investor and that is the process which began in October 2015.It took a few months to get the ball rolling and then finally we had a lot of due diligences done at our end, before we invited the foreign institutional investors to come in sort of bid for the transaction. It was a sequential process where eventually we moved to a stage where we had two final investors and today the audit committee based on the inputs of the bankers, the legal advisors the transactions and the management finally approved the decision to enter into exclusivity with GIC acting through a foreign affiliates of it.Timsy: If you could just throw some light what would be the roadmap, by when can we see the deal concluding – as you said it will be GIC affiliate. What would this affiliate be and how much money do we see coming in to cut the debt?A: It will be an investment affiliate of GIC. The roadmap would be that now that we will enter into an exclusivity arrangement with the prospective investor based on the approval of audit committee today. There will be certain finite time period within which we and the investor will hopefully conclude the definitive agreement including the final terms and conditions and everything else. Once that is done it will need to move for regulatory approval by agencies, specifically the Competition Commission of India (CCI) and honestly only pursuant to that will the transaction be ready to be funded.Prashant: Is there a timeframe mentioned in this which has been approved by the board?A: Purely for the purpose of exclusivity, today we have got the approval to enter into an exclusivity arrangement with GIC which in the next couple of days I guess we will – so that is when we will look at the finite timeframe, but we expect the timeframe to be a relatively short one of maybe 2-3 months to enter and completely close all definitive documentation including all other detailed terms and conditions.Prashant: Has the valuation being agreed upon?A: To be fair the valuation piece is in the domain of confidentiality – so I won’t be able to necessarily comment on that except that the broad principles have been completely agreed to, but obviously as you all know in transaction like this some of the valuations also stems from the final balance sheet that the investor inherit.We expect that hopefully by the time we conclude the definite documentation, we will be able to share complete light on the commercial aspect of this transaction as well.Prashant: Promoters hold already 75 percent in the listed DLF, they cannot infuse a single paisa more. They can’t raise their stake – so what are the next steps because ultimately everyone is fixated on how will this transaction enable the promoters to bring the debt down. I am sure the company, DLF has sort of thought of the next steps once this kind of goes through. Could you just share something on that?A: In fact 15 months back when we first announced this transaction. In fact, I recall after this transaction I had first come live on CNBC itself. We had clearly articulated that once the money comes in the hands of promoters and their dues and taxes etc applicable are paid, a substantial piece of it will be invested back into the company. We are completely alive to the issue of the fact that the promoters already hold the maximum float that is permissible – so obviously the mechanics of the promoters subscribing to the DLF capital will have to be in a way which is consistent with that 25 percent public float guidelines – that means we either need to make a matching institutional offering or something to ensure that the promoters do not breach 75 percent that is a law that we can’t change.Prashant: One way to do it is essentially after this transaction is done, feel free to agree with this or if you have already thought about this, would be great if you can confirm this is that DLF after this transaction does a QIP, which is it issues fresh shares, dilutes the existing holding of the promoter and then the promoters infuse money to go back to 75 percent, that is one way to do it, would I be correct in the ballpark?A: You are correct in the sense that that is one of the potential alternatives the way you articulated. We are obviously working with the bankers and the lawyers to examine all potential options to ensure that the money on a post tax basis comes back into the company and we do not violate the public float guidelines. If that means that a matching institutional offering be made, obviously it will need to be made.Timsy: By when do we see the final money coming into the parent company or the rental arm company and then working out the arrangement of reducing the debt of the parent company as well?A: I will just clarify on March 18, I recall a couple of analysts even on CNBC making too much of it. The extension by a year of convergence did not mean that the deal was delayed or year, it just meant that because there was no way we could conclude it by March or whatever it was that we took an extension. We anticipate that the process of closing the definitive terms and definitive agreement and then the process of regulatory approval is a process which could take between 5-6 months. So, if you were to put a gun on my head I would say that the money should come in the second quarter of next year but I would like to caution that regulatory approvals being a slightly unpredictable process which could have some span but all things fall in plan you should see the money in second quarter of this year.