Seeing traction in luxury segment; to mull MBS: DLF’s Tyagi

Following a favourable verdict from the Securities Appellate Tribunal (SAT), DLF is now looking at options to raise fund, says Ashok Tyagi, group CFO. The SAT quashed Sebi's order barring DLF and its promoters from raising capital for alleged disclosure lapses in its initial public offering in 2007.

In an interview to CNBC-TV18, Tyagi says DLF  is considering issuance of commercial mortgage backed securities, which will help reduce its cost of borrowing by 1.5-2.0 percentage points.

The company pays roughly Rs 750 crore interest every month, including dividend on preference shares, on its debt. Tyagi says the lower borrowing rate should help the company save around Rs 175 crore on dividend payouts.

He says there is good demand in the luxury residential property segment, while the mid-market segment remains sluggish.

Tyagi denies reports of private equity firm Blackstone being in talks to buy a stake in DLF.

Also read: SAT quashes Sebi order barring DLF from raising funds

Below is the transcript of Ashok Tyagi's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Sonia: Can you indicate to us what the game plan for DLF is, now that you can access money from the capital markets, how much funds will you look to raise whether it will be in the form of QIP, what could we expect?

A: The judgement came on Friday. Some of these actions which were on a pause mode for the last five months, we would now begin to move ahead on some of these be it the commercial mortgage-backed securities (CMBS), be it getting the game plan ready for the real estate investment trust (REITs) and obviously planning the complete and entire issue of the resolution of the compulsorily convertible preference shares (CCPS). So all of those are action plans, which we intend working on over the course of the next few weeks and months to get them all to the market.

Latha: Can you elabourate a little about the CMBS?

A: CMBS is a mortgage backed bond, which we had floated. So these are basically listed bonds.

Latha: How much will that cost the company vis-à-vis your current average cost of debt?

A: Our hope is that we should be able to save between 1.5 percent and 2 percent of the debt interest between what we normally pay for debt versus what we can raise CMBS on.

Latha: Plus you have reduced the dividend to the preference shares?

A: Yes.

Latha: How much relief does that give you in total therefore in FY16 how much may your debt burden reduce vis-à-vis this year?

A: The CMBS will not reduce the debt burden, they will only substitute bank debt with the bond.

Latha: What I meant was what will be your running interest cost, how much will that fall?

A: My running interest cost right now is running in excess of about Rs 750 crore a month. Honestly in all fairness, we need to do the detailing of when these instruments will hit for us to come to how much would the savings be for year. However, the dividend saving on account of CCPS comes to about Rs 175 crore a year including the dividend tax that we save on that account. So that is a pretty concrete saving that will be -- CMBS depending on the time by which we are able to get them to the market that again will yield about maybe 1.5 percent of the quantum that we are to float the bonds on.

Sonia: Once the CCPS gets converted next year then the promoters holding will go above 75 percent, so would you look to do a QIP anytime soon to bring the promoter share down?

A: That is something that the audit committee will need to deliberate on but if the resolution of CCPS is in a form, which sort of leads to the promoters holding more than 75 percent then that is a law that they can only be at 75 percent. So some form of dilution will need to happen at that time.

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DLF stock price

On March 16, 2015, at 11:10 hrs DLF was quoting at Rs 160.85, up Rs 3.35, or 2.13 percent. The 52-week high of the share was Rs 242.80 and the 52-week low was Rs 100.00.

The company's trailing 12-month (TTM) EPS was at Rs 4.83 per share as per the quarter ended December 2014. The stock's price-to-earnings (P/E) ratio was 33.3. The latest book value of the company is Rs 93.40 per share. At current value, the price-to-book value of the company is 1.72.

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