DEAL DETAILS DLF, Vadra did 446-cr Deals in Hotel Venture

Vadra companies owe . 132 crore; DLF says they are all normal business transactions

DLF Ltd, India's largest real estate company, has carried out three transactions worth . 446 crore with its hotel joint venture since giving Robert Vadra a 50% stake in it for . 35 crore in October 2009, an ET investigation has uncovered. These dealings, many experts say, raise further questions about the depth of the business relationship between DLF, a listed company, and entities owned by the son-in-law of Congress President Sonia Gandhi. 
These transactions find no mention in the documents released in the past week by activist-turned-politician Arvind Kejriwal on the business dealings between DLF and Vadra, which have ignited a political and media firestorm. 
According to DLF annual reports, the first of these three transactions took place in 2009-10, when it sold assets for . 150 crore to the 50:50 hotel JV, Saket Courtyard Hospitality. The hotel JV is yet to pay DLF for this transaction. In an emailed response, DLF says this transaction related to the transfer of ownership rights of the Hilton Garden Inn in Delhi, the JV's sole hotel property. "The valuation was done by independent chartered engineers and government-approved valuers," it says. Next, in 2011-12, DLF sold development rights — essentially, the rights, with regulatory clearances, to build on a plot of land — for . 161 crore to Prowess Buildcon Pvt Ltd, a 100% subsidiary of the hotel JV. DLF says this related to the development of an "affordable housing project" spread over 44 acres in Haryana. The project, DLF says, was cancelled because it was financially unviable due to escalating cost of construction and lack of government incentives. As a result of these problems, DLF decided to covert this venture into plotted or group housing projects. "These projects are underway and would take another three to four years to complete," the company statement says. 
The third transaction, in the same year, is a . 135-crore loan shown in the 2011-12 annual report of DLF. 
Explaining this transaction, the company says "no further loan" has been extended. Instead, it adds, the amount outstanding for the hotel transfer — the first transaction — has been converted into a loan. "The outstanding amount of DLF Limited was intended to be paid back to DLF by obtaining a loan from a bank/financial institution, which could not materialise due to partnership structure 
    and change in lending regulations," the company says. "DLF continues to charge interest at 12% per annum, compounded quarterly." 
The latest annual report of DLF also shows that, as of March 31, 2012, it was yet to receive . 132 crore of the total . 311-crore proceeds from the two sale transactions. Since the receivables figure in the DLF annual report is on a consoli dated basis, it nets out transactions involving DLF. So, in this case, DLF will not include half of what Saket Courtyard Hospi tality owes it as it holds 50% in the JV Thus, this . 132 crore is effectively the amount owed by Sky Light Hospitali ty — the Vadra entity that holds 50% in the JV — to DLF. An email sent to Vadra's personal secretary, Manoj Arora, seeking his response to all three transactions remained unanswered. While these dealings disclose no apparent illegality, they raise ques tions about the terms of the rela tionship between Vadra and DLF experts say. A former chief finan cial officer of a real estate compa ny, speaking on the condition of anonymity, says if advances are due for more than six months, the standard practice is for the auditor to ask the management for an ex planation. "If not satisfied, it should disclose it in the notes to ac counts," he adds. No financial documents of Saket Courtyard Hospitality, an unlisted company, are available in the public domain. Although unlisted compa nies have to file their annual ac counts with the ministry of corpo rate affairs (MCA), Saket Courtyard Hospitality has not done so yet because it existed as a part nership firm till May 2011, which exempted it from this requirement Subsequently, it became a private limited company, and came under the MCA ambit, but its first annual report is not yet available on the MCA website. However, in its 2011-12 annual re port, DLF stated its share of sever al financial metrics of Saket Cour tyard Hospitality, which can be extrapolated to gauge the hotel JV's numbers. Such an extrapolation shows that in 2011-12, Saket Courtyard Hospi tality posted revenues of . 25. crore and a net loss of . 6.8 crore And, as of March 31, 2012, it had fixed assets of . 142.5 crore and cur rent liabilities of . 140 crore. An auditor from a multinational firm, not wanting to be named, says the key question in such a transac tion involving the transfer of assets and development rights to a JV is this: "When DLF decided to transfer did it consider the JV's ability to pay back, given its cash flows?" According to MCA filings, DLF has also extended an unsecured loan of . 27 crore to Prowess Build con in 2010-11, which has since been repaid. At the time of the loan, the company was a 50:50 JV between the DLF group and Va dra's Sky Light Hospitality. Anoth er DLF group company, DLF New Gurgaon Home Developers Ltd, ex tended a loan of . 15 crore to Prow ess Buildcon during the same peri od. "The amounts must have been utilised to acquire development rights or pay government charg es," a DLF spokesperson said. 
(With inputs from Sruthijith KK & Ravi Teja Sharma)