DLF’s recent agreement to sell its wind farms to raise cash is the latest in a series of moves to hive off non-core assets. Proceeds are planned to be used to reduce debt.
DLF was hoping to raise Rs 800-900 crore from the sale of its wind energy assets (see table). These sales, however, will only make a marginal difference to its overall debt levels.
The company’s net debt was Rs 21,350 crore as of December 2012. Debt reduced by Rs 1,870 crore during the quarter, primarily from the Rs 2,727 crore sale of its 17-acre land in Mumbai to Lodha Developers. The proceeds of Rs 1,641 crore from the sale of Aman Resorts, a luxury hospitality chain, would de reflected in the March quarter.
Equity Sale
DLF also plans to raise cash through new share issue and sale of promoter stake. Promoters held 78.58 per cent of the total shares as of December 2012 and regulatory guidelines require this to be at or below 75 per cent before the end of June.
The company received shareholder approval at its Extraordinary General Meeting on April 5. Issuing around 8 crore additional shares would bring the promoter share to 75 per cent levels and would expand the current outstanding share count by five per cent.
At the current price of Rs 233, the fresh share issue would raise over Rs 1,800 crore. The company’s cost of debt has been increasing and is currently around 12.75 per cent. Assuming a tax rate of 20 per cent and assuming the company repeats a 20-25 per cent earnings growth in 2013-14 just like last year, the lower interest payment and dilution from additional stock issued may still boost earnings per share.
If at least half the proceeds are used to reduce debt, per share earnings would increase. The earnings will improve by as much as 5 per cent only if 90 per cent of the money goes to reduce debt.