Blackstone Group in advance talks to buy 40% stake in Gurgaon DLF Cybercity

BANGALORE/MUMBAI/NEW DELHI: Blackstone Group is in advanced talks to buy a stake of about 40% in DLF’s Cybercity in Gurgaon, a business district with 10.37 million square feet of office space, a deal that would make the US private equity giant the single largest owner of commercial property in the country.

While an initial deal is likely for the Cybercity portfolio, Blackstone and the developer may consider extending the partnership to rental assets, currently at 30 million square feet. New York-based Blackstone is looking to buy the stake at a capitalisation rate of about 9.5%, which is the potential return on investment. “Both parties are deciding on the stake the builder will divest to the private equity fund and the valuation will depend on the stake that Blackstone will pick up,” said three people with direct knowledge of the deal.

DLF’s realty business is divided into two – the development of homes and commercial complexes and the rental business from retail and office projects. DLF earns a rental income of Rs 1,950 crore annually. India’s biggest property developer is looking for ways to reduce debt, which stood at Rs 20,336 crore at the end of December, after the Securities & Exchange Board of India barred DLF in October from tapping the capital market for three years for suppressing information ahead of its 2007 initial public offering. The company is contesting SEBI’s order.

“Since DLF cannot go for REIT due to the recent ban on the company, it is now trying to raise money from PE funds to improve cash flows as there is no way out for the builder,” one of the three people said.

“Deal contours are likely to change depending on the outcome of DLF’s appeal in Securities Appellate Tribunal against the SEBI order. If the verdict allows any relief from the ban, DLF’s preference will be to go for REIT listing,” the person said. Blackstone cannot comment at this point, a spokesman said in an e-mail. DLF said it did not want to respond to market speculation.

DLF is looking to sell the second phase of its upcoming 2.9 million square-foot information technology park at Hinjewadi in Pune for about Rs 180 crore. It is evaluating whether the park should be sold to Blackstone at a later stage. The Delhibased developer and joint venture partner Hubtown had earlier sold the 1.8 million sq-ft developed and leased first phase of the project to Blackstone for Rs 810 crore. The developer reported a 9% drop in consolidated net profit to Rs 131.79 crore in the third quarter of FY15.