News: India's DLF may raise $3 bn

(FE 05/06/2006) New Delhi - DLF Universal Ltd., the real estate developer owned by Indian billionaire K.P. Singh, plans to raise as much as $3 billion in the nation's biggest share sale, bankers involved in the transaction said.

The company, which announced the sale in April, will begin marketing the shares to international investors after receiving regulatory approval, said the three bankers, who asked not to be identified before an announcement. The sale may raise as little as $2.5 billion, they said.

The IPO will test investor confidence in India's stock market after the biggest monthly slump in two years. A jump in demand for homes, offices and shopping malls is drawing banks such as Goldman Sachs Group Inc. and Morgan Stanley into the real estate market, and attracting investment in the stock of Indian developers such as New Dehli-based DLF.

``The size of the issue is large and the market doesn't look great, but it's in a very specific sector where there is a lot of foreign investor demand,'' said Murthy Nuni, Singapore-based managing director at Marshal Fund Partners, which invests in Indian companies. He said he plans to buy DLF's shares.

FALLING STOCKS

The Mumbai stock exchange Sensitive Index has fallen 17 percent after rising to a record on May 10. The index fell 14 percent last month, its biggest decline since May 2004 and the first monthly drop in seven. The drop has taken the price-to-earnings ratio of the index to 18.9 times from a high of 25.2 times in April.

``The real estate sector in India interests me,'' said Claudio Bernasconi, who helps manage about $280 million of emerging market stocks at Banque Cantonale in Lausanne, Switzerland. ``For investors, it will perhaps be better'' to purchase DLF's IPO shares after the market slump.

Goldman said in March it would focus on real estate investments as it seeks to expand in India, after ending a 10-year alliance with billionaire Uday Kotak. Morgan Stanley said earlier this year that it invested 3 billion rupees in Indian property developer Mantri Developers Pvt., its first real estate investment in the nation.

DLF hired Merrill Lynch & Co. and Uday Kotak's Kotak Mahindra Capital Co. to manage the share sale.

DLF plans to sell 202 million shares, of which 187.1 million will constitute new stock, the company said in a draft share sale document that it filed with the market regulator last month. It has also retained the option to sell an additional 17 million shares. Including the additional shares, the sale would constitute a 12.77 percent stake in the company.

APPROVAL RECEIVED

The developer expects to start offering the shares to investors later this month or in early July after receiving regulatory approval as early as next week, said Vancheswar, a New Delhi-based spokesman for DLF.

``We aren't in a position to comment on pricing,'' Vancheshwar said.Accelerating economic growth and easing of rules to allow overseas companies in more industries is generating demand for real estate in the nation with an expanding middle class estimated by New York-based consulting firm McKinsey & Co. at 216 million people.

``Construction has been neglected for a long period of time in India,'' Marshal Fund Partners' Nuni said. ``There is a huge amount of demand for quality construction which is just now coming up.''

FASTER GROWTH

Prime Minister Manmohan Singh's government wants to accelerate economic growth to as much as 10 percent a year over the next decade from an average 8.1 percent in the previous three years.

DLF's share sale may exceed the 105 billion rupees ($2.3 billion) raised by the Indian government from the sale of a 10 percent stake in Oil & Natural Gas Corp., the nation's biggest explorer, in March 2004, DLF's Chief Financial Officer Ramesh Sanka said on April 20.More than 70 Indian companies raised about $5.9 billion selling shares this year as of June 1, more than half of the record $10.5 billion raised in the whole of 2005, according to data compiled by Bloomberg.

DLF Chairman Singh, 74, and his family's ownership in the company will fall to 86.06 percent if the additional share sale option is exercised in full, from 98.66 percent.

DLF will use the proceeds to purchase land, fund development and construction projects and repay 136 billion rupees in loans, according to the share sale document. It will spend 65 billion rupees buying land in and around 62 cities including the financial hub Mumbai and the capital New Delhi, the document said.

LEASING TO SALES

DLF, which more than doubled its net income to 1.99 billion rupees in the year ended March 31 and sales to 12.59 billion rupees, is shifting from leasing office and retail space to selling them in a bid to realize the value of its developments in a ``more expeditious manner,'' its share sale document said.

This shift ``may increase the volatility of our revenues and profits by replacing relatively stable rental income with less predictable sales income,'' it said.

DLF had 1,372 acres of land, representing about 102 million square feet of developed area or area available for development, as of April 30, the company said. The land reserve has been valued at 1.06 trillion rupees by Cushman & Wakefield, the world's third-largest commercial real estate broker by revenue.

In addition, the company has made ``partial payments'' to buy 2,893 acres, which can be developed into about 118 million square feet of saleable land, across India, it said.

UBS AG, Morgan Stanley, Enam Financial Consultants Ltd., ICICI Securities Ltd. and Citigroup Inc. are book runners. SBI Capital Markets Ltd. will also help sell the shares.