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| DLF supremo K.P. Singh:
Premium play |
Earlier
in January, when DLF filed a revised draft prospectus with the
Securities & Exchange Board of India (SEBI) for its proposed
initial public offer (IPO) of over Rs 10,000 crore, it wasn't
accompanied by too much of hype-at least not as much as was generated
when the real estate developer first unveiled its ipo plans last
summer. In June it had filed a draft prospectus for an issue of
over Rs 13,600 crore. The company, however, had to withdraw the
issue following litigation with minority shareholders, who are
a legacy from its earlier listed avatar.
The hype may have been missing, there may
be a few changes in the prospectus (see Now And Then), but the
ambitious targets are still intact. Though company officials and
bankers are tight-lipped about the expected valuation, the buzz
in the market is that the company is targeting a valuation of
$23-25 billion (Rs 1.035 lakh-1.125 lakh crore) post a 10 per
cent dilution. DLF's current asking price seems to be a 15-20
per cent premium over the net asset value (NAV) of around Rs 450
per share-Rs 517-540. An obscure SEBI circular dated May 28, 2004
probably holds the key to the DLF issue price. The circular was
an attempt on the part of the regulator to discourage private
companies from going for a stock split just before a public offer.
It allows companies with shares of face value below Rs 10 to go
for a public offer only if the share price is to be higher than
Rs 500. That pretty much sets the floor for the DLF issue since
in early 2006 when the stock markets were scorching their way
up, the real estate major had split its Rs 10 face value share
into five shares of face value of Rs 2 each. This circular reduces
DLF's flexibility to price below Rs 500 unless it wants to restructure
its share capital once again! So, the question now remains-how
much over Rs 500 is the DLF share going to be priced?
In the updated filing, DLF has more than
doubled its disclosed land bank. However, unlike in the past,
it has fought shy of getting a third party valuation done for
the increased land bank. "We are leaving it to the investors
to value the additional land bank," say company officials.
DLF's valuation is more than two times that of its listed rival
Unitech's Rs 39,000-40,000 crore, which would appear surprising
considering both have a land bank of roughly the same size. Unitech
has 10,332 acres as compared to DLF's 10,255 acres. And at least
35-40 per cent of the land is in similarly valued locations, say
industry watchers. DLF, however, is apparently seeking a premium
based on the fact that 51 per cent of its land bank is in Gurgaon
where the-per-acre realisation is higher than in most other regions.
DLF believes the premium is deserved due to the location of its
sites within cities also.
DLF is also counting on monetising its pool
of developed properties. For instance, it has existing buildings
aggregating approximately 2.8 million sq. ft in the National Capital
Region (NCR), developed plots of approximately 7.2 million sq.
feet as well as 23 super luxury and luxury hotel sites, a golf
course, clubs, and other assets in DLF Power. The company has
also factored in its execution capabilities, reinforced with a
string of alliances, in its valuation. However, what DLF underscores
as its strengths are undermined by analysts as concerns. A high
concentration of land reserves in Kolkata (23 per cent of total)
and Gurgaon leaves it vulnerable to any downturn in these markets.
Added to this are the issues related to supply absorption especially
in Gurgaon, and execution risks with targets which have not been
attempted before in the company's and indeed the industry's history.
So, institutional investors are keenly looking at the company's
NAV assumptions.
The
SEZ Show Won't Stop
More clarity on land acquisition
norms may be the right step.
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| Indiabulls' Banga: No looking
back |
Rehabilitation
before acquisition-that's the clear line from the government on
special economic zones (SEZs), or other large projects that involve
large-scale land purchases. A three-month deadline has been fixed
to put together a rehab policy, but how much of a roadblock is
this for prospective SEZ developers? Consider Indiabulls, which
recently hived off its real estate arm into a separate company,
whose valuation will be determined largely by the multi-product
SEZ project it has in the pipeline in Maharashtra. Indiabulls
has already begun the land acquisition process, and company officials
feel that, barring an increase in the cost of land acquisition,
the project won't be derailed. Land cost is not expected to increase
beyond 15-20 per cent of the total project cost. "This is
not going to be a show-stopper," avers Gagan Banga, Director,
Indiabulls. He adds that, in fact, the clarity on land acquisition
norms is likely to help reduce the litigation related delays that
are almost always an integral part of the real estate business.
Adds Vasudeo Joshi, Head (Institutional Equity Research), Man
Financial-Sify Securities: "If India has to sustain its growth
at 8 per cent, then we need $300 billion (Rs 13.5 lakh crore)
worth of public and private investment annually. So the rehabilitation
policy has to come into fruition and the SEZ process has to go
forward."
-Shalini S. Dagar
Middle Game Gambits
Will Vodafone operate in India with the Hutch
brand?
Last fortnight,
even as three of the four bidders in the race completed the due
diligence of Hutchison-Essar's assets-Vodafone, Reliance Communications
and Essar; the fourth, the Hindujas would have completed the process
by the time this magazine hits the stands-clarity regarding the
eventual winner wasn't too forthcoming. All the four in the fray
would appear to have a chance, although at one time a Vodafone-Essar
partnership looked most likely (with Vodafone buying Hutchison's
67 per cent stake and the Ruias of Essar staying as 33 per cent
shareholders). But the Ruias have made it clear that they're as
interested a buyer as anybody else (although they don't rule out
the other two options of selling out, or staying put with 33 per
cent, either).
What appears to have derailed a Vodafone-Essar equation is the
branding issue-if Vodafone seeks to replace the Hutch brand with
its own (a logical thing to do from the UK company's viewpoint),
the Ruias won't take too kindly to that as they would once again
have to pitch in the high-investment exercise of brand-building.
Clearly, the Ruias want to make it evident that as 33 per cent
partners they would have a say on various fronts-not just brand-building
but, in future, with regard to decision-making involving entry
into new businesses, M&As, restructuring or capital raising.
Such veto rights might make many a prospective partner wary, and
might well open the door for other bidders like Reliance and the
Hindujas. They may also be the reason why talk of a couple of
the bidders attempting to pick up a stake in the Hong Kong company
itself gained ground, rather than buying a stake in the Indian
operator. On the other hand, bringing such issues into the open
might well be negotiation strategies by the players. The cloak
and dagger contest continues.
-Krishna Gopalan
Turnaround Solutions
IFCI is back in the black, but what's its
game plan?
After
spending five years in the red, the country's oldest development
financial institution (DFI), IFCI, is back with a bang. Not only
has it shown a profit for the first half of 2006-07, last fortnight,
it also received a Rs 780-crore bonanza from the sale of its stake
in the National Stock Exchange. And there may be more good news
in store. Credit rating agency ICRA, in which IFCI has a 21 per
cent holding, is slated to hit the capital market some time this
year. IFCI has already informed the bourses of its intention to
offload its stake in ICRA. IFCI also owns 19 per cent in the listed
Travel Finance Corporation of India (TFCI); that holding is valued
at some Rs 25 crore at current prices. Although there are no concrete
proposals to sell equity in other smaller companies, IFCI says
in the normal course of business it keeps on disinvesting, in
small quantities, its holding in listed companies through stock
exchanges.
What's most heartening for IFCI, however, is the turnaround.
"Concerted efforts on the recovery front and restructuring
of liabilities have helped in the turnaround of the institution,"
says Sanjoy Chowdhury, Chief General Manager at IFCI. Over the
longer term, though, the problem for IFCI is that it still dabbles
in project finance and project advisory, where the scope of returns
is limited. Which is why contemporaries like ICICI Bank and IDBI
have today become full-fledged banks, with a sharp focus on retail
banking. However, a former IFCI director feels IFCI can hold its
own as a DFI. "There is a void created in the DFI space in
India. Globally we have established DFIs like 3i in the UK, KFW
in Germany and Japan Development Bank (JDB) in Japan," he
maintains. Yet, to ensure IFCI's survival, a long-term game plan
needs to be chalked out. "The options on the table are a
merger with a stronger institution or a strategic partner,"
says a top official of IFCI.
-Anand Adhikari
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