India's largest listed property developer DLF Ltd slumped more than 26% on Tuesday, after market regulator SEBI barred the company from tapping the capital markets for three years.
The ban, a blow to the heavily-indebted real estate firm, follows what the regulator said was DLF's failure to provide key information on subsidiaries and pending legal cases at the time of its record-breaking 2007 initial public offering.
In a 43-page order published on Monday, regulator SEBI said DLF, its billionaire founder and chairman Kushal Pal Singh and five other company executives would be barred from "buying, selling or otherwise dealing in securities".
"As far as non-disclosure cases are concerned, this is the biggest case in SEBI's history and this is by far the biggest punishment they have imposed," said JN Gupta, a former executive director at the regulator who now runs a shareholder advisory firm.
DLF raised $2.3 billion in 2007 at the height of the pre-financial crises euphoria, in what was then India's biggest market debut.
"DLF and its board wish to reassure its investors and all other stakeholders that it has not acted in contravention of law either during its initial public offer or otherwise," the company said in a statement late on Monday.
The property giant said its board was "guided by and acted on the advice of" its legal advisors, merchant bankers and audit firms while preparing the offer documents, and that it would defend itself against the order passed by SEBI.
Monday's ban means DLF could now struggle to pay down its debt using equity or debt instruments regulated by SEBI. Its debt, which swelled as the firm ramped up land acquisitions before the financial crisis, stood at 191 billion rupees ($3.13 billion) at the end of June.
New Delhi-based DLF builds homes, offices and shopping centres and is currently developing a 1.9 million square-foot retail mall close to the capital, which is expected to be the biggest in the country when it is completed next year.
DLF founder KP Singh, ranked 505 on the Forbes list, is the 21st richest Indian with a net worth of $3.3 billion, according to Forbes data.
Missed Chance
The company, which has about 26 million square feet of leased assets in the country, will also be barred from listing a Real Estate Investment Trust (REIT). SEBI finalised rules for REITs last month.
"It will not have access to the REIT market for 36 months, and given DLF's large portfolio of commercial assets across the country, it would have been one of the biggest beneficiaries of REITs," Anubhav Gupta, sector analyst at Maybank Kim Eng India.
REITs, which invest mainly in commercial property and pay rent from their property to shareholders as dividends, provide developers with a new avenue for funding, allowing them to effectively sell finished commercial buildings to investors.
DLF has already run into regulatory trouble this year.
Earlier this year, the Supreme Court upheld a 6.3 billion rupee ($103.3 million) fine against the company imposed by the antitrust watchdog. It has also been at the centre of a political controversy over sweetheart land deals.
The decision by SEBI marks its latest effort to bare its teeth, after long being criticised for failing to tackle violations by major market players.
Earlier this year, the regulator singled out a Hong-Kong based hedge fund as the target of its first major trading probe, and has debuted new laws to improve disclosure standards among corporates in India.
"The order has come as a surprise," Maybank's Gupta said on Monday. "I think it is a bit harsh... but the regulator is on a spree to set an example in the market."
