Looking to raise Rs 3000cr via sale of non-core assets: DLF

While the development side will take time to pick-up, the company is trying to reduce its debt in the rental segment through monetization of Real Estate Investment Trusts (REITs).

With interest rate cuts, re-negotiation with banks and bonds, the company is expecting to reduce rental debt by 100 plus basis points this year. Tyagi is also expecting the demand to pick up in the next four quarters.

Below is the transcript of Ashok Tyagi’s interview with Latha Venkatesh and Reema Tendulkar on CNBC-TV18.

Latha: We know that your non-convertible debentures (NCD) plans open today. Since private equity and promoters are so much rearing to put in money, are you also speaking to private equity guys?

A: We had indicated in the February annual presentation which we reiterated in May when we did the annual results that we are clearly exploring options at the project level for private equity participation. As and when some of those plans freeze, we would obviously come back and indicate more specifics, but clearly that is a space which we have not been active in the last few years, but are now increasingly looking at the project level.

Latha: Can you indicate if the interest has improved at all in terms of the residential market demand? You had said you are looking at residential space for private equity. And even from the point of view of the investors? What is the mood? Is it any better than previous times or as good as previous times?

A: On the private equity front, there is clearly very serious interest; no doubts about that. On the actual demand on the ground, the demand continues to be muted. On specific projects like our golf course projects we continue to see decent and good traction, but across the board in terms of mid-range projects, due to the overhang of the inventory and other factors, the demand has not picked up yet. We are hoping in the next few quarters it will, but it may take at least four quarters before we see a secular demand pull back.

Reema: The interest from the investors is high, but on the ground, the interest from the consumers does not seem to be so high. With respect to this fund raising, which you spoke about from PE players, for how many projects are you looking to sell stake in to private equity players? What will be the quantum of dilution and how much will you raise via this route in FY16?

A: We are overall looking at a broad ball-park of Rs 3000 crore through the year through a combination of disposal of non-core assets like DT Cinemas, which we announced and project level investment of private equity players. We would want them to be joint venture partners with us. It should be hopefully close to something like a 50-50 deal, but the exact specifics could change from project to project.

Latha: Let us talk about your debt reduction plans. We saw that DT Cinemas deal fetch you Rs 500 crore. Anything lined up now in 2015 in terms of asset sale plans?

A: In this fiscal, we have indicated that we are looking at an overall of Rs 3,000 crore through non-core reduction as well as through private equity players. Our overall debt equity is at 0.72 and our overall net debt is Rs 21,000. Two-thirds of it is through the rental business and one thirds of it through the development business. The development business unfortunately will need time to pick up and so, in the interim, the private equity investment is coming as almost like something to manage both the debt as well as the cash flow.

On the rental side, while in the short-term, the debt may go up as we incur more capital expenditure (Capex), we are looking at the monetisation route through Real Estate Investment Trust (REIT) and we are working on that already. In the next few quarters it should provide the solution in a phase manner to solve the debt issue on the rental side of the business.

Reema: With your recent announcement of raising Rs 5,000 crore via NCD, will it lower your rate of interest? Currently, what is the cost of borrowing and how much perhaps will it come down by?

A: The NCD resolution on the postal ballot is an enabling resolution. We have done a similar thing last year for reasons all of us know we could not activate. So, it is in some sense an enabling resolution. We are clearly interested in looking at bonds including commercial mortgage-backed securities (CMBS), which we have spoken earlier about. On an overall interest rates standpoint, we are now clearly seeing a southward trend in the bankers’ interest rate.

On the rental side, we are looking at a reduction of 100 basis point plus. Similar plans for the development side as well. We do believe that through a combination of the benefits of Governor Rajan’s interest cuts, re-negotiation with the banks and alternate instruments like bonds, we should be looking at clearly a southward trend in the overall interest rates in the fiscal.

Latha: When we last spoke with you, you said REITs are a distance away. Shereen Bhan is covering the road show of the Finance Ministry in the United States and the latest she got from the Finance Secretary on the record interview is that he is expecting first REIT listing this fiscal. You want to advance your time table as well?

A: Actually, we did indicate that after that minimum alternate tax (MAT) issue was resolved that we could actually get a REIT as early as the end of this fiscal or maybe just overflowing into the next quarter or in the first quarter of the next fiscal because there were two fights on the REIT, one was the MAT and other the dividend distribution tax (DDT). The government has been gracious enough to concede on MAT. DDT, they have not, but we do believe that the DDT is in some sense more of a yields play, which can be worked around with appropriate structuring. We are not holding back on working on our REIT plans for a resolution of the DDT structure. The MAT provides a good enough platform for us to begin serious effort in that direction.

Reema: Considering the demand outlook is a bit muted, would the revenues from new sales stand at Rs 3,500-4,000 crore in FY16 as you had earlier guided?

A: That is what we had guided and that is what I think would be a reasonable guidance even today.