{"id":996,"date":"2012-10-06T14:43:11","date_gmt":"2012-10-06T09:13:11","guid":{"rendered":"http:\/\/teekhapan.wordpress.com\/?p=996"},"modified":"2012-10-06T14:43:11","modified_gmt":"2012-10-06T09:13:11","slug":"dlf-borrows-money-at-12-38-lends-free-to-vadra","status":"publish","type":"post","link":"https:\/\/vivekkaul.com\/2012\/10\/06\/dlf-borrows-money-at-12-38-lends-free-to-vadra\/","title":{"rendered":"DLF borrows money at 12.38%; lends free to Vadra"},"content":{"rendered":"

\"\"<\/a>
\nVivek Kaul<\/strong>
\nDLF is India\u2019s largest listed real estate company. During the hey days of the company a few years back, such was the craze for the DLF stock that Kushal Pal Singh, its owner, was listed among the ten richest people in the world. Those days are now gone.
\nThe company has recently been accused by Arvind Kejriwal and Prashant Bhushan of giving interest free loans amounting to Rs 65 crore to Robert Vadra. Vadra is the married to Priyanka Vadra, daughter of Sonia Gandhi.
\nKejriwal and Bhushan have released documents which clearly show that companies set up by Vadra borrowed money from DLF and then used that money to buy properties from DLF among other things. (You can access the press release here<\/a>). The market value of these properties has increased considerably since Vadra bought them.
\nAccording to a tweet on the Twitter handle of news channel NDTV, DLF has said that their dealings with Vadra have been completely transparent. Vadra on his part had explained his relationship with DLF to the Economic Times <\/em>in March 2011. \u201cI have a good understanding with DLF. Our children are friends, we are friends. They are seasoned businessmen. They are not daft. They are educated, sensible people and are reasonable and shrewd in their business. They don’t need me to enhance them. They’ve existed for years,\u201d Vadra had said. (You can read the complete story here<\/a>).
\nOn the face of it this might look like a completely normal business transaction between two different businessmen. But the latest annual report and the analyst presentation made DLF throw up some interesting questions nevertheless.
\nAs per an analyst presentation (dated August 6, 2012) made by DLF, the gross debt of the company stands at a whopping Rs 25,060 crore as on June 30, 2012. At the end of March 31, 2012, the gross debt had stood at Rs 25,066 crore. (You can access it here<\/a>).
\nThe annual report of DLF points out \u201cthe company\u2019s borrowings from banks and others have a effective weighted average rate of 12.38% p.a. calculated using the interest rates effective as on March 31, 2012 for the respective borrowings.\u201d
\nSo what this means is that the company had debt outstanding of Rs 25,066 crore as on March 31, 2012, and was paying an interest of 12.38% on that debt. The debt outstanding as on June 30, 2012, had not changed much and was at Rs 25,060 crore. It is fair to assume that over a period of three months the interest rate on the debt outstanding wouldn\u2019t have changed significantly.
\nWhat is also interesting is that during 2011-2012(i.e. the period between April 1, 2011 and March 31, 2012) the sales of the company stood at Rs 4582.67 crore. This means that the debt of the company is nearly 5.5 times its annual sales, which is extremely high.
\nThe question that DLF needs to answer is that why is a company which has such huge debt outstanding and is paying an interest of 12.38% per year on it, giving out interest free loans? Also it seems to have been having trouble in bringing down its outstanding debt. The outstanding debt between March and June 2012, has gone down by only Rs 6 crore.
\nThe company has been trying to bring down the debt by selling investments that it had made over the last few years. It recently sold a plot that it owned in Lower Parel in Central Mumbai to Lodha Developers for Rs 2,750 crore. The company has been trying to sell several of its other investments over the last few years.
\nThe high debt level has been a huge concern for the analysts who track the company. As Sandipan Palan analyst with Motilal Oswal wrote in a recent report \u201cDLF\u2019s high debt has been a key concern for investors; however, we believe leverage(which means debt in simple English<\/em>) of Rs 16,000-17,000 crore would be a sustainable level for the company.\u201d
\nSo here is a company which analysts believe should be cutting down on its debt by around Rs 9,000 crore, and it has been giving out interest free loans to an individual with zero or very little experience in running a real estate business. DLF needs to tell us in some detail the \u201cbusiness\u201d reasoning behind this decision.
\nAnother interesting point that comes out while going through the annual report of the company is that it has 65 non current investments. The annual report of DLF points out that \u201cInvestments are classified as non-current or current based on management\u2019s intention at the time of purchase. Investments that are readily realisable and intended to be held for not more than a year are classified as current investments. All other investments are classified as non-current investments.\u201d
\nOf the 65 non current investments only two are joint ventures. One of these joint ventures is with Skylight Hospitality Private Limited, a company owned by Vadra and his mother Maureen. Skylight owns a 50% stake in Saket Courtyard Hospitality Private Limited, which runs the Hilton Garden Inn Hotel in Saket, New Delhi. This is the only operational hotel of the company.
\nWhen it comes to making non-current investments joint ventures are not a favoured form of investing with DLF, given that only two out of its 65 non current investment are joint ventures.
\nThe venture with Skylight is very small by DLF standards. In the annual report of the company the book value of the joint venture is put at just Rs 5.6 crore. Also why would a company as big as DLF is enter into a joint venture for a four star hotel with an individual who has absolutely no or very little prior experience in running a hotel? This is something that needs to be answered. A recent report in the Daily News and Analysis seems to suggest that the hotel run by this joint venture is on the block. (You can read the story here<\/a>).
\nThe entire Congress party has come to the rescue of Robert Vadra and tried to project the deals between Vadra and DLF as normal business transactions. One senior leader even went to the extent of saying \u201cdoesn\u2019t Vadra have a right to occupation?\u201d Yes, Vadra has the right to an occupation and so does DLF. But there are too many unanswered questions here that need to be answered.
\nThe article was originally published on www.firstpost.com on October 6, 2012.\u00a0http:\/\/www.firstpost.com\/business\/dlf-borrows-money-at-12-38-lends-free-to-vadra-481727.html#.UG_tdwlmmIs.twitter<\/a>
\n(Vivek Kaul is a writer. He can be reached at vivek.kaul@gmail.com<\/a>)\u00a0<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Vivek Kaul DLF is India\u2019s largest listed real estate company. During the hey days of the company a few years back, such was the craze for the DLF stock that Kushal Pal Singh, its owner, was listed among the ten richest people in the world. Those days are now gone. The company has recently been … <\/p>\n

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