Shares of DLF surged 3 per cent in trade on Friday after the company's board of directors allowed promoters KP Singh family to sell their 40 per cent stake in its rental arm DLF Cyber City Developers (DCCDL) for an estimated Rs 14,000 crore to institutional investors.
The promoters will re-invest a significant part of the amount realised from the sale in DLF Ltd.
The scrip of realty major ended flat at Rs 139.80 after hitting an intraday high of Rs 140.50, up 3.06 per cent on the Bombay Stock Exchange (BSE).
The decision was taken on Thursday in the board meeting, based on the recommendation by the audit committee, which was set up last year to suggest ways to drive the growth of rental business.
According to market sources, the valuation of promoters' 40 per stake in DLF Cyber City Developers Ltd (DCCDL) could be around Rs 12,000-14,000 crore.
In late 2009, DLF had announced merger of its subsidiary DCCDL with promoters' firm Caraf Builders and Constructions.
DCCDL had then issued CCPS (compulsorily convertible preference shares) worth Rs 1,597 crore to promoters. Post conversion, promoters would have 40 per cent stake in DCCDL, which holds bulk of the DLF s commercial assets.
"With this proposed transaction, DLF will be able to achieve three of its main objectives - removal of conflict of interest, creation of a rental platform with large financial investors and reducing substantial portion of debt. It's killing three birds with one stone," DLF Senior Executive Director Finance Saurav Chawla told PTI.
DLF would be able to create REITs in the capital market in partnership with the long term financial investors, he added.
The promoters stake in DLF, which stands at 75 per cent, could increase post this investment, sources said.
To resolve the issue of CCPS held by promoters in DCCDL DLF in a filing to the BSE said that the board approved the recommendations made by the audit committee to sell promoters' stake in DCCDL to institutional investors.
The filing did not give any valuation of the promoters' equity stake in DCCDL.
"The audit committee today evaluated several options available to the company to reduce the conflict of interest with the CCPS Holders in relation to the rental business and after deliberations, recommended to the Board to consider the proposal that CCPS Holders sell the CCPS to unrelated third party institutional investor(s)," DLF said.
The panel suggested DLF to finalise the strategic terms of transaction including selection of third party institutional investor(s) and also oversee and facilitate the transaction, in consultation with promoters.
It also recommended DLF to appoint bankers, transaction advisors, tax and legal advisors etc to assist in the transaction.
Promoters should invest back in the company, a substantial amount (net of taxes/other charges) of the consideration received from the sale of CCPS, the panel said.
"After deliberation and upon the CCPS holders conveying their consent, the Board accorded its approval for the transaction. Upon completion of the proposed transaction, the company will continue to hold 60 per cent equity interest in DCCDL, on a fully diluted basis," the filing said.