MUMBAI: DLF, India's biggest property developer, is closer to meeting its debt reduction target after it agreed to sell its plot of land in Mumbai for 27 billion rupees ($488 million) to Lodha Developers on Monday.
Like other developers, DLF gorged on cheap finance during the 2007-08 property boom in Asia's third-largest economy to fund ambitious expansion plans for millions of square feet of homes, offices and malls.
Now it is selling non-core assets, including the 17-acre plot in central Mumbai, hotel chain Amanresorts and its wind power business, to reduce its borrowings of 227 billion rupees ($4.1 billion) by 50 billion rupees by the end of March 2013.
This deal was a significant part in achieving that target," Ashok Tyagi, chief finance officer for DLF told Reuters.
The Delhi-based developer said it had received an advance payment of 5 billion rupees for the plot from Lodha and would receive the remaining 22 billion rupees by October.
DLF bought the plot for about 7 billion rupees in 2005 from state-run National Textile Corporation with plans to develop homes, offices and shops in India's financial capital of Mumbai.
However, a slowing economy forced it to shelve development plans, and DLF decided to sell the land to reduce debt.
Earlier this month DLF reported an 18 per cent fall in profit for the June quarter due to the high cost of financing its debt and a slowdown in home sales across India.
Mumbai-based Lodha will build a five million square-foot mixed-use development on the plot, for which it has planning approval. It has begun construction, it said on Monday.
At a deal value of 27 billion rupees the land has cost Lodha about 5,400 rupees a square foot. Average residential prices in the area are about 23,000-30,000 rupees a square foot whereas office rents are about 19,000-23,000 rupees a square foot, according to a July report by Jones Lang LaSalle.
Lodha, which is also building the world's tallest residential tower on a site nearby, said it sold 50 billion rupees worth of homes in the fiscal year that ended in March and has 34 million square feet of projects under construction.
Shares in DLF, valued by the market at about $6.5 billion, ended up 3.5 per cent at 217.70 rupees in a stable Mumbai market ahead of the news.