DLF plan could hit barrier

Plans by the promoters of top real estate company DLF to buy out hedge fund DE Shaw’s investment in family-owned DLF Assets (DAL) could hit a roadblock because of a little known rule in the country’s foreign exchange laws.
Under a ‘put’ option signed between DE Shaw and three companies controlled by DLF-promoter KP Singh’s family in May 2007, the US-based fund, which invested $400 million in convertible preference shares of DAL, could exit its investment and get a fixed return of at least 27%.
As per the ‘put’ option with DLF Investments, Kohinoor Real Estates and Buland Consultants, DE Shaw is supposed to get back around Rs 2,500 crore after forex adjustments. But FEMA classifies all equity investments that carry a fixed return as debt, which could bring DE Shaw investment under the purview of external commercial borrowing (ECB) guidelines.
With ECBs not allowed in the real estate sector, investors holding convertible stock with fixed returns could find their exit option blocked.

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