Mumbai: Market regulator Securities and Exchange Board of India’s (SEBI) ban on DLF, one of India’s largest real estate developers, from accessing securities market for three years will certainly hit the real estate industry which is already experiencing a slow down, say analysts.
But they also see a positive side to this harsh move “as it will ensure good corporate governance as it brings discipline into the system,” says Pankaj Kapoor, Managing Director of Liases Foras, a real estate rating and research firm. “It’s a blessing in disguise since investors have for long been taken for granted. Such a step would make sure there is transparency and accountability in future.”
The biggest losers are the home buyers in North India where many of DLF’s projects are under construction and SEBI’s step is sure to slow down construction since “cash flows will be stretched in this market.” He, like some others, think that being barred from participating in the markets is likely to force DLF to sell some of its key assets.
The SEBI ban comes at a time when home sales have fallen due to poor consumer sentiment, high inflation and interest rates as well as the exorbitant cost of buying a home. Those who have already invested in DLF properties will have to face construction delays, says Kapoor.
On October 10, the market regulator barred DLF Ltd and its directors including chairman Kushal Pal Singh from accessing the securities market for three years. SEBI also prohibited them from buying, selling or otherwise dealing in securities, directly or indirectly, or in any other manner.
SEBI said the ban follows DLF’s failure to provide key information on subsidiaries and pending legal cases at the time of its record-breaking 2007 initial public offering. Following the ban, DLF shares fell to a record 30 per cent.
Kapoor has also questioned as to why SEBI did not act earlier and believes that the valuation companies should also be penalised. Sucheta Dalal of Moneylife also echoes his sentiments and says, “The investigation pertains to disclosures that ought to have been made in its controversial Initial Public Offering for re-listing its shares in 2007. Considering how controversial the IPO was, one wonders how this escaped SEBI’s attention then.”
Meanwhile, ASSOCHAM stated, “Denying them access to the financial resources at a time when the corporates, especially in the real estate sector, are battling heavy debt, is grossly unfair. In fact, it is exactly to deal with such technical and bureaucratic jargons and provisions that the corporates engage intermediaries like merchant bankers, legal advisors, auditors, investment advisors and registrars at the time of issuance of IPOs for a hefty fee. The moot point, therefore, is should these intermediaries not be fixed any responsibility if there is a purported oversight of these small technical regulations.”
The chamber also said while the industry is all for fair play, “activism on the part of market regulators would hurt the investment climate and increase the policy risks which may stare at any investor at any time, years after a purported act of omission and not commission is brought to the fore”.