India’s largest realty firm is going to raise approx. Rs 3,600 crore

As per the recent reports, DLF, the India’s largest realty firm is going to raise approx. Rs 3,600 crore in current quarter by issuing the securities, which is backed by its IT-SEZ and it is the part of DLF’s strategy to replace the debt of higher interest rates. The same report stated that on Tuesday, DLF rallied about 2.27 per cent in intraday trade. However; the stocks must gains to settle on 0.7 per cent which is higher at Rs 139.3.

DLF is also planning to issue its first ever REIT (Real Estate Investment Trust) in the present fiscal to monetize its commercial assets. According to the statement of Ashok Tyagi, who is Chief Financial Officer of DLF, “Currently we are actively working with different rating agencies and investment bankers for CMBS issue (Commercial Mortgage Backed Securities). The more he added that we don’t have any kind of time frame to launch the Commercial Mortgage Backed Securities, but sources are indicating that DLF will launch its CMBS in next two months.

In February 2015, DLF was set to launch its CMBS of about Rs 3,600 crore as a part of SEZ business to improve its quality of debt. In present the company is waiting for SAT (Securities Appellate Tribunal) judgment on the SEBI’s order that had ban DLF from accessing the capital market for 3 to 4 years.

In March 2015, Securities Appellate Tribunal had passed the order on the basis of ‘majority order’ by imposing the ban for next three to four years from the side of SEBI. In 2014, the DLF had launched the country’s first ever CMBS and was successfully raised more than Rs. 900 crore in two rounds of CMBS with the help of two shopping malls in Delhi. Currently the net debt of DLF is about Rs 20,336 crore as per the data on December 31, 2014 out of which Rs 14,000 crore are from the rental arms.

It is expected that soon company will monetize its commercial assets to list REITs (Real Estate Investment Trusts), as per the statement of Tyagi. Whereas; in current fiscal DLF also want to float its first REIT but currently it is subject to receive the requisite approvals. The more he added that Real Estate Investment Trusts now become viable as government has clarified that MAT (minimum alternate tax) will be applicable on the time of actual transfer of these units. Apart from all that the DDT (dividend distribution tax) will continue to be an alternative for some of the real estate players who are looking for REITs. In simple terms we can say that there are 4 to 5 pilot REITs are about to launch in this fiscal year.

It is clear that REITs will help to unlock the value of completed and leased assets which can be used for debt and capex reduction. The DLF is planning to raise the Rs. 3,000 crore via PE (private equity) on each project level, as per the statement of CFO of DLF. However; the discussion is underway with some of the private equity players, but still there are no timeline for such PE deals. Apart from that company is planning to divest around 50 per cent stake in four of the latest projects to PE firms. Now its clear that DLF is looking for the way to raise the funds through PE routes to boost its cash flow because there have been sluggish nature in the sales of houses in last year.

In past one to two year the DLF has land bank from about 300 million sq ft out of which approx. 50 million sq ft is under construction and due to that the share price went up to 1.25 per cent which is Rs 138 piece on the BSE index with market cap of Rs 24,644 crore.

Supertech to raise Rs 500 crore

The leading real estate firm Supertech is planning to list its six of the rented as well as operational malls with REIT (real estate investment trust) to raise Rs 500 crore in the duration of next two years which is the year 2015 and 2016. As per one of the latest survey Supertech has more than 2 million sq ft of retail space in its six malls out of which two are in Ghaziabad and one each is in Noida, Rudrapur, Haridwar, Rudrapur, and Meerut.

However there are few products under construction by Supertech. Currently Supertech is in discussion with one of the Singaporean company which has experience in setting up the real estate investment trust in various real estate markets. As per the statement of officials we are in the starting stage for the listing of our assets and REITs own the properties to get the rental income and distribute it among investors. For real estate investors they provides high dividend with a liquid option where one can invest in the real estate sector.

Most of the real estate firm in the country and as well as some of the private-equity funds are showing interest to set up the REITs because stock market regulator SEBI (Securities and Exchange Board of India) notified its rules to list the trusts in September 2014 with a aim to view and attract more and more funds in a transparent manner, so that real estate developers can pool the money for the development of new projects. But till now no REIT is listed in India and it’s just because the lack of clarity in taxation process. With a aim to encourage local listing, central government is decided to do some capital gains in the favor of sponsors in the Union budget of 2015 at the time of listing of REITs on rental income.

However the capital gain will be applicable for all the direct transfer of same or different assets to any kind of these trusts. But still the budget is not offering any clarity on dividend distribution t as. The major real estate developers such as; RMZ, DLF, Embassy Office Parks, Ambience and many others with PE firms such as; Kotak Realty Fund, Red Fort Capital and Blackstone is known for listing their assets as REITs. They have develop the acquired rent producing assets in past few years as it could attract more than $1 billion or Rs 6,280 crore in 2015 witht eh additional tax benefits announced in the union budget of 2015, said the property consultant from JLL India. However most of the property experts said that in near future more exemptions can be made by the state as well as central government to make its segment more attractive for real estate players.

But it’s clear that the Capital gains taxes will exempted on the transfer of any SPV (special purpose vehicles set up to carry new real estate projects) share by different or same sponsors but at the MAT ( minimum alternate tax) is still applicable. If the minimum alternate tax will be so it will make REITs more attractive for real estate developer, says Shweta Aggarwal, Director of BMR & Associates.