DB Realty To Issue Convertible Warrants To Rakesh Jhunjhunwala And Others; Stock Gains

Shares of DB Realty Ltd. hit the upper circuit after the real estate developer approved allotment of additional warrants to new investors, including Rakesh Jhunjhunwala and others, on a preferential basis.

The board at its meeting held on Wednesday approved allotment of further 5 crore warrants convertible into equivalent numbers of equity shares to non-promoter investors, subject to approval of shareholders of DB Realty and regulatory authorities, according to an exchange filing.

• Rekha Jhunjhunwala: 1 crore warrants

• RARE Investments: 1 crore warrants

• Lotus Family Trust: 50 lakh warrants

• KIFS Dealers: 50 lakh warrants

• Abhay Chandak: 1 crore warrants

• Aditya Chandak: 1 crore warrants

This is in addition to 7.7 crore warrants to be issued to promoter group and Pinnacle Investments as disclosed in the company's Feb. 4 filing. It takes the total warrants issue to 12.7 crore.

That drove the stock price to hit the 5% upper circuit. This is also the ninth straight session when the scrip was locked in the upper circuit, gaining as much as 54.74% during the period.

After the conversion of warrants allotted, the shareholding pattern shall change to:

• Promoters of DB Realty: 54.08%

• Pinnacle Investments: 17.97%

• New investors: 9.98%

• Other public shareholding: 17.97%

Other Highlights

• DAM Capital Advisors was the adviser for the transaction.

• Total fund infusion into DB Realty after conversion of warrants allotted and proposed to be allotted will be Rs 1,575 crore.

• This amount will be utilised in repaying debt and augment long-term capital requirement of the company.

• DB Realty expects to be debt-free, on a standalone basis, on March 31, 2022.

The company aims to be a key player in the Mumbai Metropolitan Region with a portfolio of over 100 million sq ft. DB Realty intends to partner established, large real estate developers to unlock value of its portfolio, the company said in the statement.

The Timeline

• Jan. 31: DB Realty announced a board meeting on Feb. 3 to discuss and consider the proposal to raise funds.

• Feb. 3: DB Realty approved the allotment of 13.05 crore convertible warrants to promoter group entities—Goenka Family Trust and SB Fortune Realty Pvt. (4.87 crore warrants each)—and non-promoter investor Pinnacle Investments (3.3 crore warrants).

• Feb. 3: Godrej Properties approved a potential investment in DB Realty and setting up of a special purpose vehicle to undertake slum rehabilitation projects in Maharashtra, among others. Godrej Properties announced it would subscribe to warrants convertible into equity shares, adding to about 10% of issued and paid-up capital of DB Realty for Rs 400 crore.

• The decision caused the stocks to tumble. Analysts said the deal lacked merit as DB Realty's foray into slum rehabilitation projects could get stuck and result in defaults. They also flagged that the investment in DB Realty would expose Godrej Properties to risk of capital misallocation.

• Several brokerages even worried that the investment in DB Realty and a stake in the entity could lead to a near-term derating for Godrej Properties.

• Feb. 4: Godrej Properties cancelled the proposed deal, citing ‘substantial feedback and views' from stakeholders and minority investors as the reason for not proceeding with the investment in DB Realty.

• Feb. 6: DB Realty announced a board meeting on Feb. 9 to discuss and consider the proposal for raising of funds.