DLF Ltd will be forced to sell assets, even unfinished projects, to meet debt obligations, say bankers, after India's biggest property firm was banned from the capital markets for three years – the market regulator's harshest penalty ever.
The Securities and Exchange Board of India (SEBI) ruling on Monday (October 13) will cut off DLF's access to the Mumbai stock market, Asia's best-performing bourse this year. The company, shouldering $3bn of debt, will also be barred from the bond market just as its free cash flow sinks to multi-year lows.
The ban follows what SEBI said was DLF's failure to provide key information on subsidiaries and pending legal cases at the time of its record-breaking 2007 initial public offering. On Tuesday (October 14), DLF shares fell to a record low at the market close, wiping out $1.2bn in market value.
The SEBI ban comes as slowing home sales due to poor consumer sentiment, high inflation and interest rates hit developers in Asia's third-largest economy. Bankers and analysts say the only option left for DLF, India's most indebted property developer, is to divest assets, even half-complete projects, if the SEBI order is upheld.
“That's the only practical option because the banks are also very cautious in lending to the sectors like real estate. So refinancing would not be that easy,” a banker with a large US bank that previously worked with DLF said, declining to be named as he was not allowed to speak to the media about client-specific issues.
The ruling also adds to the regulatory pressure and political scrutiny on DLF.
DLF is facing a probe from the antitrust watchdog and has been accused by the media and political opponents of entering into improper land deals with well-connected businessman Robert Vadra. DLF and Vadra, the son-in-law of opposition Congress party chief Sonia Gandhi, have denied the allegations.
The SEBI ban also comes ahead of the state assembly elections in the northern state of Haryana on Wednesday (October 15). Any change in government could affect DLF's future projects in the region, analysts say.
An official at the Securities Appellate Tribunal said DLF could try and ask for a stay on the order until the appeal is heard. DLF declined to comment beyond the statement it issued late on Monday. The company said it would defend itself against the order passed by SEBI.
