DLF - the painful journey

All's well that that ends well. The cliche holds true for what is now India's biggest real estate company DLF, which listed on the bourses last week.

Soon after listing, the company became the eighth most valuable in the country and its promoters, KP Singh and family are now the fourth wealthiest Indians behind the Ambani brothers and Sunil Mittal.

But people who followed the issue carefully know it was one of the most tumultuous IPOs in recent times. Right from the time the issue was conceived in Q1 of 2006, it was plagued by controversy. There was intense speculation that a company with significant interests in real estate did not want DLF to get big money from the stock markets. An executive from the rival's camp reportedly told close associates, "The DLF issue in its current form will happen over my dead body."

Call it coincidence if you will. But soon after DLF filed its draft red herring prospectus (DRHP), reports that the company had short changed its shareholders on an earlier rights issue of debentures in November 2005 surfaced.
A public interest litigation was filed and the firm received over 500 complaints from shareholders. It eventually allotted 1.9 million shares with retrospective effect.

Around the same time, real estate stocks started to crash on the markets. Of course, valuations of companies like Unitech and Ansal Housing had run up rather quickly. But this crash shaved off nearly a third of their stock prices.
Suddenly, DLF started to look expensive and its merchant bankers began to get the jitters. They advised against going to the market with an IPO.

Even as all of this was happening, Sebi issued a new directive. It said that real estate companies could get land banks valued, only if a clear title deed existed. The move, on Sebi's part, was a well thought and fair plan to rein in errant real estate companies milking the primary markets. For DLF though, the order took the wind out of its sails. Sources said, this directive shaved off Rs 100-150 from the proposed issue price.

The reason being that when DLF's IPO was first mooted, analysts rated it highly for the land bank it held. This land bank though, was held using smaller firms under different names as a front. This was because DLF reckoned that smaller firms could negotiate a better price for land than what DLF could. They had realised that often sellers quoted higher than market prices if DLF was the buyer.

Even as this drama was unfolding, a cabinet minister intervened on DLF's part and warned the rival camp that some of the permissions it was seeking from his ministry would be delayed inordinately if they didn't back off.

They did and the issue went through. But like the rival had sworn, not in the form it was originally planned in.

Though company sources would never confirm, DLF had plans to issue shares in the region of Rs 900-1,100, when it first filed DRHP. It eventually issued stock at Rs 525 and reduced the shares on offer.