How to manage a DUD!! ask KP Singh

Delhi Land Finance is to merge another 100% promoter owned company with one of its 100% subsidiary - in a cashless deal. This is supposed to provide great value going forward to the shareholders of DLF.

Now for some history and the facts of the current issue:

DLF came out with a public issue some 3 years back at a price of 525 per share. It is currently languishing between 375 to 425. So thats 3 years of interest on 525 lost to the poor shareholder. Lets put a value to that - say 260/- share. Before the public issue the promoters tried to hoodwink the existing minority shareholders by forcibly acquiring their stake at a pittance. This held up the issue by a year as the matter was settled by the courts.

Fast forward to the current transaction. Going by their history of browbeating their shareholders and downright cheating them it is not surprising to find the total lack of transparency in this deal. But with what is available the following is clear:

step 1 - DAL bought assets from DLF (basically all those dud developments not sold) - this forced their other shareholder in DAL - DE Shaw to actually beg to be released from this partnership - which MR KP Singh happily did. (not surprisingly the debt in the books of DAL approximately equals the amount paid to DE SHAW.. hmmm..)

Step 2 - now that DAL is 100% owned by the promoters except for the convertibles that Symphony capital holds - due in 2012 for which also the promoters conveniently hold a call option - the promoters can go ahead and merge it any which ways they deem fit!!

Step 3 - look for a patsy - in other words the shareholders of DLF.

Now the beauty of the transaction is that the debt on the books of DAL which is approx 2300 crores is equal to 4 years rental of all the assets of DAL. including interest we are looking at a scenario where the shareholders of DLF will get nothing for almost 6 years.

The only person benefitting in all this is KPS who otherwise will have to sell his DLF holdings to ward off personal financial ruin which has been brought about by badly placed real estate bets and for borrowing in the cash market to trade on his own shares to keep the price UP!! he tried doing that with DLF cash through a buy back but found that it was not workable. So the first step is to buy the shares low in benami names and then once the price is up to a respectable level the company would "buyback" and that way you pay off the "cash loans" through guaranteed profits for the lenders by trading in DLF shares. NEAT AINT IT?!!

Action points:

1. SEBI to check on the status of the buyback - what were the prices the shares were bought back and dates of trade.

2. flow of funds from DAL to DLF and the sources of these funds.

3. flow of funds from KPS to DE Shaw - source of these funds.

4. loan taken in DAL - where the money was utilised?

I think the above should more than put a full stop to the mess that is DLF today and a word of caution to the investors of DLF - BEWARE for the company is a DUD!!