All you wanted to know about DLF-Vadra deal
Vivek Kaul / Wednesday, October 10, 2012 10:00 IST
Robert Vadra, son-in-law of Sonia Gandhi, has been in the news lately for his dealings with India’s biggest listed real estate company DLF. There are a lot of question that the deal has raised. Let’s try and understand some of the answers to those questions
Who owns Sky Light Hospitality Private Ltd?
The company has issued 50,000 shares with a face value of Rs 10 each and so has an issued capital of Rs 5 lakh. Of this Robert Vadra owns 49,900 shares and his mother Maureen owns 100 shares. So the company is basically owned by Robert Vadra.
What are the total assets of the company?
As per the balance sheet dated March 31, 2011, the company has total assets amounting to Rs48.53 crore. This includes fixed assets of two parcels of land worth Rs 16.18 crore. The total investments of the company are worth Rs 24.37 crore. The cash and bank balances amount to Rs 4.77 crore and the loans and advances are at Rs 3.21 crore. All these assets add up to the total assets of Rs 48.53 crore.
How can a company with a capital of Rs 5 lakh have assets worth Rs 48.53 crore?
Robert Vadra and his mother Maureen’s contribution to the business is a measly Rs 5 lakh. How did that Rs 5 lakh grow into assets of Rs 48.53crore? A simple explanation is that Sky Light would have borrowed money and used that borrowed money to buy land, make investments, have cash in the bank and to give out loans
This would mean that the company would have to borrow Rs 48.48 crore (Rs 48.53 crore – Rs 5 lakh of capital). But why would anyone in their right minds give a loan of Rs 48.48 crore to a company with a shareholder capital of Rs 5 lakh?This would imply a debt to equity ratio of 970. Also as the balance sheet of the company reveals it has not taken any loans.
So where did this money come from?
For this one needs to take a look at the current liabilities side of the balance sheet of the company. The current liabilities of the company are at Rs 58.05 crore. Of this amount the company received an advance of Rs 50 crore from DLF against a plot of land. As a recent statement issued by DLF says “M/s Skylight Hospitality Pvt Ltd approached us in FY 2008-09 to sell a piece of land measuring approximately 3.5 acres just off NH 8 in Village Sikohpur, Dist Gurgaon…DLF agreed to buy the said plot, given its licensing status and its attractiveness as a business proposition for a total consideration of Rs 58 crores. As per normal commercial practice, the possession of the said plot was taken over by DLF in FY 2008-09 itself and a total sum of Rs 50 crores given as advance in instalments against the purchase consideration.” So DLF gave Rs 50 crore as an advance to Sky Light against a piece of land owned by Sky Light. This land is showed to be worth Rs 15.38 crore in the balance sheet of Vadra’s Sky Light. Accounting values assets at historical cost. So that is the price Sky Light must have bought that piece of land. This raises the question as to where did Vadra raise this Rs 15.38 crore from? DLF comes into the picture only later when the company decides to buy a piece of land from Vadra’s Sky Light.
But what is the difference between a loan and an advance?
Take the case of a salary advance. When any individual takes a salary advance there is no contractual obligation between him the company and at the same time the company does not charge him an interest. The company gives an advance to the employee primarily because there is a relationship between them. Typically employees who have just joined find it difficult to get a salary advance. The same logic works when one company gives an advance to another company. So the first question to ask here is that was there a relationship between Vadra and DLF? Vadra had told the Economic Times in March last year “I have a good understanding with DLF. Our children are friends, we are friends.” Now just because two promoters are friends does that mean one company will give an advance to another? That is something both DLF and Vadra need to throw light on.
Isn’t this advance of Rs 50 crore a part of Skylight’s current liability?
Yes that is the case. A current liability is essentially a debt or an obligation of a company that needs to be paid up in one year. As DLF’s statement says the advance was paid in instalments starting in 2008-2009 (the period between April 1, 2008 and March 31, 2009). This advance has remained on the books of the company till March 31, 2011. This means that DLF had given an advance to Vadra’s Sky Light for a period of greater than two years. Can this be categorized as an advance? Can this be categorized as a current liability? From the way this looks DLF basically gave Vadra an interest free loan and tried to pass it off as an ‘advance’.
Where does Arvind Kejriwal fit into all this?
What Kejriwal is saying that Vadra’s Sky Light used a portion of this Rs 50 crore advance to buy property from DLF. Sky Light also has a 50% stake in Hilton Garden Inn Hotel, Saket, New Delhi, which it has set up with DLF. The main question that Kejriwal is asking “It is well known that DLF has been given 350 acres of land by Haryana govt for the development of Magnolia project in Gurgaon (where Vadra was allocated 7 apartments) and has been given various other properties and benefits by the Congress governments in Haryana and Delhi. Is that the quid pro quo for
DLF giving Vadra the seed money for the purchase of these massive properties worth hundreds of crores?”
In simple English what this means is that because DLF gave Vadra what seems to be an interest free loan rather than advance, did the Congress government return these favours by allocating land to DLF in lieu of that? Was there a quid pro quo? While this allegation can be probed, it will be next to impossible to establish.
Where does all this leave DLF?
The gross debt of DLF stands at a whopping Rs 25,060 crore as on June 30, 2012. At the end of March 31, 2012, the gross debt had stood at Rs 25,066 crore. The annual report of DLF points out “the company’s borrowings from banks and others have a effective weighted average rate of 12.38% per annum.”
We can safely say that this rate of interest of 12.38% wouldn’t have changed dramatically between March, 2012 and June, 2012. So a company which has debt of more than Rs 25,000 crore and is borrowing at greater than an interest rate of 12% is basically giving an interest free loan to Vadra. The high debt level has been a huge concern for the analysts who track the company. As Sandipan Pal an analyst with Motilal Oswal wrote in a recent report “DLF’s high debt has been a key concern for investors; however, we believe leverage of Rs 16,000-17,000 crore would be a sustainable level for the company.”
Also DLF says that its deal with Vadra is normal commercial practice. If that is the case it would be great if the company could give us a list of other entrepreneurs to whom the company has given an advance running into Rs 50 crore for a period of greater than two years. That should be put everybody who is crying foul in their place.
(Vivek Kaul is a writer. He can be reached at firstname.lastname@example.org)
All you wanted to know about the DLF-Vadra deal: Part 2
DNA / Thursday, October 11, 2012 10:00 IST
Several leaders of the Congress party have termed the accusations being made by Arvind Kejriwal-led India Against Corruption (IAC) against Robert Vadra as cheap publicity. Rashid Alvi on Tuesday even questioned the veracity of the documents put out by Kejriwal and company. But a detailed look at the balance sheets of the companies owned by Vadra and statements made by DLF throw up several questions. Vadra is the son-in-law of Sonia Gandhi, the president of the Congress party, and chairperson of the United Progressive Alliance which governs this country. DLF is India’s largest listed real estate company.
How does DLF justify giving Vadra an advance of Rs 50 crore?
Robert Vadra owns 99.8% of Sky Light Hospitality Private Ltd. The balance sheet of the company as on March 31, 2009, shows an entry of a plot of land in Manesar, Haryana, valued at Rs15.38 crore. This means that somewhere during the period April 1, 2008, to March 31, 2009, the company must have bought this piece of land for Rs 15.38 crore. This can be concluded because the balance sheet for March 31, 2008, does not show this entry.
Vadra’s Sky Light Hospitality got an advance of Rs50 crore against this land from DLF. The company says this in a statement released on October 6. “Skylight Hospitality Pvt Ltd approached us in FY 2008-09 (i.e. the period between April 1, 2008 and March 31, 2009) to sell a piece of land measuring approximately 3.5 acres…DLF agreed to buy the said plot, given its licensing status and its attractiveness as a business proposition for a total consideration of Rs58 crores. As per normal commercial practice, the possession of the said plot was taken over by DLF in FY 2008-09 itself and a total sum of Rs50 crores given as advance in installments against the purchase consideration.”
This statement tells us that Vadra’s Sky Light Hospitality approached DLF to sell a piece of land of 3.5acres sometime during the period April 1, 2008 and March 31,2009. DLF agreed to buy this land and valued it at Rs 58 crore. Against this valuation it gave Sky Light Hospitality an advance of Rs 50 crore.
What is interesting is that Sky Light bought a piece of land for Rs15.38 crore anytime between April 1, 2008 and March 31, 2009. They approached DLF to buy it during the same period. And DLF agreed to buy it for Rs 58 crore.So in a period of less than one year the value of the land went up by Rs 42.62 crore (Rs 58 crore – Rs 15.38 crore) or 277%. This doesn’t really sound right given that it was precisely at that point of time the international financial crisis was starting and both real estate as well as stock markets were weak.
Did DLF really complete take over the land plot in the financial year 2008-2009 (the period between April 1, 2008 and March 31, 2009)?
DLF’s statement says very clearly that it took over the possession of the land in 2008-2009 from Sky Light Hospitality. If that was the case why does this land show up as a fixed asset in the balance sheet of Vadra’s Sky Light Hospitality as on March 31, 2011? Even the advance of Rs50 crore given by DLF shows up as a current liability on the balance sheet of Sky Light Hospitality. How could the land be with both Vadra and DLF at the same time? This is something that DLF needs to throw light on.
Was DLF’s advance to Vadra’s Sky Light Hospitality really an interest free loan?
DLF’s statement says very clearly that the company started giving the advance amounting to a total of Rs 50 crore to Vadra starting in the year 2008-2009. This advance was still on the books of Sky Light Hospitality as on March 31, 2011, listed as a current liability.
A current liability is a debt or an obligation which is to be repaid within a period of less than one year. Interestingly there is another entry of an advance of Rs 10 crore from DLF which is there on the balance sheets of Sky Light Hospitality dated March 31, 2010 and March 21, 2009. This is again an advance which was given for a period of greater than one year.
DLF in its statement also claimed not to have given any loans to Vadra. Real Earth Estates Private Ltd, another company owned by Vadra shows an entry of Rs 5 crore as a loan from DLF as on March 31, 2010. The IAC media release points out that the company in a filing with Registrar of Companies had specified that this was an unsecured loan. An unsecured loan is a loan in which the lender does not take any collateral against the loan and relies on the borrower’s promise to return the loan.
There are two conclusions that one can draw here. One is that what DLF thinks is an advance looks more like an interest free loan to Vadra. And two, its claim of not having given any loans to Vadra don’t hold good.
What did Vadra do with these so called advances and real loans?
Sky Light Hospitality had a Rs 25 crore advance from DLF on its books as on March 31, 2009. A small portion of this was used to pick up a stake of 50% in a hotel joint venture with DLF. This company called Saket Courtyard Hospitality runs one hotel in Saket, New Delhi, which is reported to be on the block.
Sky Light Hospitality shows an advance received of Rs 50 crore from DLF as on March 31, 2010. During the course of the year April 1, 2009 to March 31, 2010, the company paid a total tax deducted source of Rs 4.95 lakh on the interest earned on its fixed deposits.TDS is cut at the rate of 10.3% when the interest earned on fixed deposits with a bank during the course of one year crosses Rs 10,000. What this tells us is that Sky Light Hospitality earned Rs 48.3 lakh (Rs 4.95 lakh/10.3%) as total interest. This interest obviously was earned out of investing a part of Rs 50 crore which the company received as an advance from DLF during the financial year 2009-2010 into bank fixed deposits.
Sky Light Hospitality also gave out advances and loans to other companies owned by Robert Vadra. As on March 31, 2010, Sky Light Hospitality had given a loan of Rs 6.61 crore to Sky Light Reality Private Ltd, another company owned by Vadra. This was used to fund seven flats in DLF’s Magnolias project and which are shown to be worth around Rs 5.23 crore. It was also used to buy a Rs 89 lakh apartment in DLF’s Aralias apartments.
The balance sheet as on March 31, 2009, shows an advance of Rs 3.5 crore to Sky Light Realty Private Ltd. This advance was used by Sky Light Realty to fund agricultural land in Palwal and land at Hayyatpur in Haryana. It also used around Rs 9 lakh to book flats with two builders. Sky Light Reality also earned an interest of around Rs 31 lakh by placing a part of this advance as a fixed deposit with banks.
Vadra’ Real Earth Estates had a total paid up capital of Rs 10 lakh as on March 31, 2010. DLF gave the company a loan of Rs 5 crore. This means the debt equity ratio of the company was 50 (Rs 5 crore/Rs10 lakh) which is humongous. This money was used to part-fund fixed assets worth around Rs 7.1 crore. This includes a plot in the posh GK-II area of Delhi and land in Bikaner, Gurgaon, Hassanpur and Mewat.
Whether DLF benefited with its relationship with Vadra we don’t really know. But Vadra clearly benefited from the same.
Vivek Kaul is a writer. He can be reached at