SEBI’s Order Adds To DLF’s Woos

Real estate major DLF may face a hard time raising capital, following market regulator SEBI’s order to bar the realty giant from entering the capital market for three years. Equity market analysts said that because of the capital market watchdog’s decision DLF will now have to raise funds through private equity debt.
“The company is already under a huge debt. On top of it, the order will put DLF at a disadvantage because the company will not just be able to raise funds from the market but also no bank will be willing to grant loans as they would need collaterals,” said P Phani Sekhar, Fund Manager at Angel Broking.

He added that the company will not have any access to Real Estate Investments Trusts (REITs), which will further put the realty major at a distinct disadvantage as compared to its peers. “SEBI has already issued REITs guidelines. We have to understand that the economy will not turn overnight. It will take time. Therefore, in the meantime, the expectation was that if REITs was to be up and operational then the companies would offload much of their large operational assets that have not yet found buyers there and raise capital. However, with REITs coming under SEBI’s purview, DLF will not be able to reap the benefits of the security,” explained Sekhar.

Analysts noted that in a capital intensive market such as real estate, raising funds is extremely important especially in a scenario where other players have not been restrained from raising funds from the markets. “DLF is already selling its non-core assets to pay off its debts. They would have expected to raise funds through FIIs, which is not possible anymore,” stated another equity market expert on the condition of anonymity.

However, Sekhar averred that the market regulator’s order will not have any ramification on the sector. In the real estate sector, he has recommended investors to invest in South based real estate companies such as Shobha Developers, Prestige Builders or the North based Aashiyana Real Estate.