Why DLF Scmaster Promoters are Banned from Accessing Capital Markets ?

In a 43-page order, SEBI has ruled that DLF had failed to disclose key information on some subsidiaries at the time of its IPO in 2007 (source: SEBI circular dated 10 Oct 2014). The ruling relates to complaints by Kimsuk Krishna Sinha regarding DLF’s IPO filed in 2007. Mr Sinha had also filed a First Information Report (FIR) against DLF’s subsidiary, Sudipti Estates. According to SEBI’s ruling, at the time of the IPO, DLF had tried to avoid reporting its association to Sudipti Estates. Following this, SEBI issued an order prohibiting DLF and six personnel from accessing the securities market for three years.

Impact on issuance of DLF REITs and CMBS
This order prohibits the company from issuing and listing REITs and CMBS. DLF has significant gross debt amounting to INR230bn and of late issued CMBS worth INR9bn through its South Delhi malls Promenade and Emporio. The company had plans to further raise about INR30-35bn mainly through office assets during the year. SEBI’s ruling puts these plans on hold and as a result DLF will struggle to unlock value from its commercial assets via the use of capital markets. The ruling also closes access to the other option for monetising the rental assets – REITS, which have to be mandatorily listed on the stock exchanges through an IPO

Negative Impact on the integration of rental business with DLF Ltd
DLF was in the process of acquiring a 40% interest in DLF Assets Pvt. Ltd through a share swap deal after converting Compulsorily Convertible Preference share in order to own 100% of its rental business to facilitate listing of DAL (DLF Assets Pvt. Ltd) as a REIT. This share swap amounted to INR25bn and would have increased the promoters’ Kushal Pal Singh and his family stake over 75% (to c84% based on current stock price) for which DLF planned to sell new shares to bring the stake back to 75%. Now, given that DLF Ltd cannot participate in capital markets for three years, this rules out the execution of the above.

There are still pending cases against DLF that could take management’s focus away from the main business when it is facing a weak demand environment, and that could impact the brand image in the National Capital Region (NCR).
We believe a fall in property prices in NCR coupled with negative rulings could encourage even more cases being filed against developers.

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