Ajay Piramal’s financial services business has been restructured and integrated into a larger, more valuable entity in the prelude to a spin-off of the unit and Piramal Enterprises Ltd’s healthcare business.
The real estate investment business under Piramal Fund Management Pvt. Ltd (PFM) and the mezzanine funding unit, known as Structured Investment Group (SIG), have been merged under the former. Mezzanine funding is a hybrid of debt and equity financing.
The real estate and non-real estate businesses will share common systems and processes including asset management, credit monitoring, risk assessment and legal services, but will continue to have separate operating teams.
Vikasdeep Gupta has been internally promoted to head the SIG business; he, along with five regional heads of the real estate lending business based in Mumbai, Delhi, Bengaluru, Chennai and Pune will report to Khushru Jijina.
Jijina, who was earlier managing director of the real estate financing business, will now oversee the entire financial services business under PFM.
“We aim to be a sector-agnostic, complete solutions provider for companies. The idea is also to strengthen the overall financial services business as a single entity, add more value and offer a wider bouquet of services,” Jijina said in an interview through video conference.
Piramal’s SIG business, set up in 2012, has a loan book of Rs.1,900 crore; it has a $1 billion joint venture (JV) with Dutch pension fund asset manager APG Asset Management NV. The JV was formed in July 2014 to invest in high-growth infrastructure projects.
In a change in management, Jayesh Desai, co-head of SIG, has stepped down but will continue to be associated with PFM as a consultant.
Jijina, who joined Piramal Group in 2001 and has worked in various roles in the organization, said the SIG business can be scaled up significantly with a stronger and more robust deal flow across many sectors.
“The focus of investments will be on sectors such as infrastructure and renewable energy and the product offering will include promoter lending, senior secured debt at a lower cost of lending. We are building a larger team and believe the SIG business can be grown just the way our real estate financing business has,” said Jijina.
Over the next couple of years, there are plans to deploy about Rs.10,000 crore from SIG’s books.
In April, Piramal Enterprises, through SIG, bought non-convertible debentures of Sanghi Industries Ltd, the flagship company of the Ravi Sanghi Group, for Rs.265.50 crore. Along with APG, it jointly invested $132 million (around Rs.900 crore) in Essel Infrastructure’s solar platform across India this year.
The integration under PFM is part of the larger plan to eventually spin off the healthcare and financial services businesses under Piramal Enterprises to create focused, stand-alone entities.
In May, chairman Ajay Piramal said the intent is to simplify the structure and create focused businesses, and in the process unlock value for shareholders.
Piramal Enterprises currently has six divisions under it—healthcare, pharmaceutical solutions, critical care, consumer products, financial services and information management.
Piramal’s attempt at restructuring its financial services business under a single umbrella comes two years after it merged its real estate private equity business Indiareit Fund Advisors Pvt. Ltd and its non-banking finance arm Piramal Finance to form Piramal Fund Management, in a bid to offer real estate firms a full range of financial services. Later, it started offering construction finance to developers as well.
From a loan book and equity exposure in real estate at Rs.7,000 crore in March 2014, PFM’s total exposure to real estate, in the form of debt and equity, was Rs.27,000 crore as of March 2016.
The third dimension in this integration will be the close synergy and association between PFM and Shriram Housing Finance Ltd.
Shriram Housing Finance Ltd is an affiliate of Shriram City Union Finance Ltd, which sold a nearly 10% stake to Piramal Enterprises for Rs.790 crore in 2014. Before that, Piramal Enterprises acquired a 20% stake in Shriram Capital Ltd and a 9.9% stake in Shriram Transport Finance Co. Ltd.
With this integration, Jijina said that Shriram can lend its housing finance facilities to developers who are in PFM’s real estate portfolio, making the product offering even wider. Jijina has also been inducted on the boards of both Shriram Housing Finance and Shriram City Union.
“Any large conglomerate would definitely benefit if they integrate and create a group company, which will lead to greater focus. The ability to raise capital and expand would be far superior. It also helps to build assets on the balance sheet and leverage them, as well as optimally use the capital,” said Kalpesh Mehta, partner at Deloitte Haskins and Sells, India.
PFM is one of the most aggressive investors, even in a downturn when demand for capital is high. This year, it plans to launch a $250 million platform with a pension fund after forming a $500 million platform with CPP Investment Board in 2014 to provide debt financing to residential projects.
This year, it also plans to deploy about Rs.5,000 crore in the commercial office sector, of which Rs.2,500 crore has already been committed. Earlier this year, in a unique investment strategy, PFM also decided to pre-sanction a Rs.15,000 crore funding limit to back about 8-10 developers across cities, of which it has already disbursed 35%.
“The combined entity under PFM could replicate the integration in the real estate lending business, which created synergy between all lines of credit,” said Shashank Jain, partner, transaction services, PricewaterhouseCoopers India.
“This will allow them to play across the value chain and strengthen the management bandwidth and cohesiveness as a group.”