DLF at it Again

This cashless deal (worth Rs10,000 crore) is another case where a family-owned unit has been valued at a fancy price and dumped on a publicly-listed entity. But neither the regulator nor the investor community seem to care

According to media reports, DLF is planning to acquire DLF Asset (DAL) through its wholly-owned subsidiary DLF Cyber City, which will buy Caraf, an investment firm owned by KP Singh and family which owns DAL. The deal is valued at Rs10,000 crore, which according to the company will consolidate all its commercial assets under DLF Cyber City.

DLF Cyber City will issue fresh shares to the promoter family. Post this cashless acquisition, the promoter will own around 38% stake in DLF Cyber City and DLF’s stake will be reduced to 62% from 100% currently. DLF is set to list DAL on the Singapore Stock Exchange before March 2010. KP Singh and family are believed to have bought the shares through a hedge fund owned by DE Shaw for $500 million (around Rs 2,325 crore) in DAL last week. DAL has Rs7,300 crore in debts while the equity value is pegged at Rs2,500 crore.

Clearly, the promoters of DLF are at it again. The media report is self-explanatory.  The questions are:
1. If DE Shaw paid $400 million in 2006, why has the family bought back the same assets at $500 million in 2009? Surely, the real-estate markets have crashed considerably in the following three years and if anything, the stake could have been bought back at half the price, if not lower? And if this is going to be the benchmark for valuing the family-owned company (DAL) that is going to be merged into DLF, surely it is a scam.

2. An ‘independent’ committee has been appointed to look into this so called re-structuring whereby another family-owned unit gets valued at a fancy price and gets dumped on a publicly-listed company. Will the committee ask the above question and more important, find out how many more such family owned ‘jewels’ are around which operate in the same sphere and will get dumped on the listed entities?

When DLF came for the IPO, it had several ‘synergistic’ businesses like hotels, commercial complexes on rent, cinemas etc. which determined its high valuation. Now the strategy for dumping some of them (which were synergistic) is to apparently get out of ‘unrelated’ businesses. How does something synergistic yesterday become unrelated today is for the ‘independent’ directors to mull over.

It is common knowledge that many promoters have umpteen companies that are used to siphon off money from listed vehicles. Instances like the one in the newspaper report above are sufficient grounds for any investor to dump the shares. How can one expect any fairness, so called ‘independent committees’ notwithstanding? Surely even Satyam had ‘independent’ committees. It is high time that every promoter makes a separate declaration about family owned/controlled entities which are going to get dumped on the listed vehicle.

The sad part is that investors (institutional or rational ones) are not bothered about any of this. For them, governance does not matter one bit. Regulators are more worried about form-filling compliance and unless there is a public hue and cry, they do not have the competence or willingness to go beyond ‘legal’ compliance.

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    Sensex sheds 220 points, closes at 16,877

    Indian markets faltered on fears of the apex bank moving towards a tighter monetary policy

    The Sensex closed at 16,877, down 220 points from the previous day’s close, while the Nifty ended the day at 5,033, down 73 points, on fears of monetary tightening by the central bank.

    Reliance Industries Limited (RIL) was down over 1%, on reports that RIL was looking to surrender five-six blocks in KG D6 due to its failure to strike oil or gas in this well. This move will take RIL’s total number of surrendered blocks to 19-20.

    Gammon India declined 2%, after the company’s overseas unit SAE Powerlines, Italy, secured a 220-kilovolt transmission line turnkey contract aggregating $22.50 million in Algeria.

    Royal Orchid Hotels declined 1% after the company established and commenced operations of its new four-star hotel, Royal Orchid Central.

    City Union Bank has entered into an agreement with Geojit BNP Paribas Financial Services, Cochin, to provide online trading in equities, derivatives, IPOs and mutual funds to its customers. The stock was down 2%.

    Many Indian firms have reportedly paid higher advance tax in the third instalment. As per media reports, Tata Motors has paid Rs100 crore in the third quarter against zero payment in the same period last year. Mahindra & Mahindra paid Rs195 crore against Rs4.50 crore. Tata Steel paid Rs650 crore against Rs260 crore. Hindalco Industries paid Rs100 crore against Rs40 crore.

    Hindustan Unilever paid Rs200 crore against Rs155 crore, Larsen & Toubro paid Rs270 crore against Rs210 crore, Grasim Industries paid third quarter advance tax at Rs150 crore against Rs75 crore, UltraTech Cement paid Rs90 crore against Rs65 crore, HDFC’s third quarter advance tax was at Rs320 crore against Rs280 crore last year.

    Meanwhile, Bajaj Auto paid Rs320 crore against Rs105 crore over the same year-ago period whereas Reliance Industries paid Rs850 crore, against Rs450 crore in the year-ago period. Tata Consultancy Services' third quarter advance tax was at Rs177 crore against Rs129 crore. ACC’s third quarter advance tax was at Rs110 crore against Rs 125 crore. HDFC Bank’s September quarter advance tax jumped to Rs400 crore from Rs300 crore. State Bank of India paid advance tax worth Rs1,795 crore against Rs1,700 crore. ICICI Bank’s Q3 advance tax fell to Rs301 crore against Rs625 crore.

    Advance tax is paid in four instalments in June, September, December and March, and is based on taxpayers' projected income, giving an indication of industry’s performance in coming months.

    During the day, Moody’s Investors Services raised its outlook on rupee rating to ‘positive’ from ‘stable’, citing the country’s strong external position and resilience to the global credit crisis. Moody’s current local currency rating for the country is ‘Ba2’, two notches below investment grade. It said that the change in the outlook on the local currency government bond rating was prompted by increasing evidence that the Indian economy has demonstrated its resilience to the global crisis and is expected to resume a high growth path with its underlying credit metrics relatively intact. It also raised the ceiling on Indian banks' foreign currency deposits to ‘Ba1’ from ‘Ba2’ to better reflect the robust external position of the country. It said that the latest rating action does not affect its outlook on the government's foreign currency bond ratings, which remain ‘stable’ at ‘Baa3’.

    The government’s total spending will remain at Rs10,20,000 crore ($218 billion) for the fiscal year to March 2010, same as the budget estimate made in July 2009, said finance minister Pranab Mukherjee. Mr Mukherjee also said that the federal fiscal deficit in 2009-10 would remain within the targeted 6.8% of gross domestic product.

    The Manila-based Asian Development Bank (ADB) hiked growth forecasts for developing economies in Asia, just three months after its previous forecast, but warned against any hasty withdrawal of stimulus packages. The multilateral bank said that regional economies should grow 4.5% on an average in 2009 and 6.6% in 2010. In September 2009, the bank had forecast 2009 growth at 3.9% and 2010 expansion at 6.4%. However, the ADB warned that care must be taken in withdrawing economic stimulus packages. It also said that risks to Asia’s expansion included a short-lived recovery in developed economies and destabilising capital flows.

    During the day, Asia’s key benchmark indices in China, Hong Kong, Japan and Indonesia fell by between 0.22%-1.23% on speculation that China's government will take more steps to curb property speculation, while the indices in Singapore and South Korea rose by between 0.06%-0.17%.
    On Tuesday, 14 December 2009, the Dow Jones Industrial Average rose 30 points while the S&P 500 and the Nasdaq Composite were up 8 points and 22 points respectively.

    In premarket trading, the Dow was trading 27 points lower.

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    Cleaning up or Cleaning out

    SEBI has banned entry loads for mutual funds. The outcome has been catastrophic; more earnings for big banks and less service for retail investors. Analysis by Sucheta Dalal & Debashis Basu

    Four months ago, the market regulator Securities and Exchange Board of India (SEBI) banned the entry load on mutual fund investment. SEBI’s intention was to save mutual fund investors an unnecessary...

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