Supriya Verma Mishra ET INTELLIGENCE GROUP

Normal 0 false false false EN-US X-NONE X-NONE /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin-top:0in; mso-para-margin-right:0in; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0in; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin;} DLF-DALMERGER     Promotersto gain from merger       IT’S that feeling of deja vu. Delhi-basedreal estate developer DLF hasannounced a merger of its commercial realty arm DLF Assets (DAL) with itself —a move aimed at repaying some of DAL’s debt.    This merger is also aimed atconsolidating all commercial properties under DLF, which will help add anannual income of close to Rs 500-600 crore in the form of lease rentals from2009-10. DAL currently earns around Rs 325 crore from lease rentals.    The new structure involves themerger of DLF subsidiary DLF Cyber City Developers with Caraf Builders andConstructions, which is the holding company of DAL. The valuation ratioapproved by the board for Cyber City and Caraf is in the ratio of 60:40. Thismeans that DLF shareholders will have access to 60% and promoters to 40% of themerged entity. However, this will be a cashless transaction.    DLF sells commercial property to DAL , which is controlled by KP Singh who owns 78% in the latteralong with his son and DLF promoter Rajeev Singh. DAL buys commercial propertyfrom DLF and collects lease rentals from it. With this merger, the debt onDLF’s books would be an additional Rs 2,460 crore.    Caraf, along with its subsidiaries,has four 3.3 million sq ft rent and a majority stake in DAL, which owns fourSEZ properties with total leased area of 6.4 million sq ft. On the other hand,Cyber City has 6.7 million sq ft of builtout space across commercialbuildings in Gurgaon and two operational malls in Delhi. Cyber City can further develop commercial and retail spacein Gurgaon and Mumbai.    Due to non-availability of detailednumbers, we did some back-of-the-envelope calculations. Cyber City has a rentaland development income of Rs 1,450 crore for FY09. The value of this companyafter the debt consideration comes close to Rs 11,300 crore, about 10 times itsprofit of Rs 1,100 crore. Capitalising DAL’s rentalincome at an average 10% capitalisation rate and considering a net debt of Rs 2,460 crore, DAL could be valued at roughly Rs3,050 crore.    It shows that though the promoter’sshare has come down in DAL, this merger provides access to high-rental yieldingland. Whether the merger will really work out for the shareholders or not isyet to be clear, but it should certainly work out to the advantage of thepromoters.   Courtesy:- ET dt:- 18/12/2009  

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