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Market apprehensive of probable DLF-DAL merger
May, 13th 2009

In the wake of promoters' stake sale in DLF, market participants favour such decision as it projects good liquidity inflow into the beleaguered real estate company, which bears good amount of liability. However, they are also apprehensive of a probable merger in the long run, which could hurt shareholders interest.

The founders of DLF on Wednesday sold around 11 per cent of their stake, raising more than $800 million. As per latest reports, DLF is in need of around Rs 4000 crore.

To meet this liquidity, the management was desperately planning to offload its stake to PEs and individual HNIs. On the other hand the company has also put on block its prime business property for sale to generate liquidity, feels Dillip Davada, an independent market analyst based in Mumbai.

Market men feel such a stake sale will finally result in greater cash flow into the market. The proceeds would be used to infuse capital in its privately held property trust DLF Assets Ltd (DAL). It would help DAL to purchase private equity D.E. Shaw's stake in the company.

Said V K Sharma, head - equity research, Anagram Stock Broking, Currently, the stake dilution is good for the companys financial health. It will generate liquidity for the company which wants to complete its big projects. However, in the long run there is a possibility of a merger between DLF and DAL.

On being asked as to why such a merger is not worthwhile from an investor point of view, Sharma states that both the business models of those two companies are different. While DLF sells properties to get revenue, DAL retains assets on lease basis. Once the lease is over, the company may not get another lease right in time, which would result in stopping of revenue inflows.

On similar lines, NSE listed broker Manish Innani concurred, After the stake dilution, a merger is not far fetched reality. It would precipitate in downgrading the company from an investment perspective.

On Wednesday, shares in DLF, which the market values at more than $8 billion, closed at Rs. 233, down 1.33 per cent on NSE wherein SNP CNX Nifty were down by 1.40 per cent.

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