Piramal Fund plans to focus on equity investments in real estate3 min read . Updated: 12 Aug 2016, 04:49 AM IST
Piramal Fund Management has a $300 million offshore platform in the works and plans to deploy about Rs500 crore for land transactions
The Ajay Piramal Group’s investment arm Piramal Fund Management Pvt. Ltd (PFM) plans to focus on equity investments in residential projects through a new $300 million offshore platform that is in the works, deploy about ₹ 500 crore for land transactions as well as kick off its second Mumbai redevelopment fund later this year, said a top executive.
The $300 million equity-based platform with a large pension fund is in the last leg of being formalized, and will fund developers of residential projects.
“Equity is the need of the hour in real estate and will be a clear focus for us as well. While deal flow has slowed down a bit this year, good developers are still attracting investments and projects sales. Unlike debt, which put developers under some pressure, equity is long-term capital which also gives them space and time to repay," Khushru Jijina, managing director at PFM said in an interview.
He did not disclose the name of the pension fund that is partnering PFM on the offshore platform.
PFM will also make ₹ 500 crore of equity investments by partnering with developers to buy land for plotted and villa development focusing on Bengaluru, Pune and Chennai. This will be done by raising money from high net-worth individuals through its so-called discretionary Portfolio Management Service offering (where the portfolio manager decides where to invest).
For the land investments, two transactions have been shortlisted, in north and south Bengaluru, for an investment of ₹ 80-100 crore and a targeted internal rate of return of 25%.
“The developer partner will bring in domain expertise, as also his skin in the game with 20-40% of the total capital requirement," Jijina said.
After deploying ₹ 500 crore from its first Mumbai Redevelopment Fund in 2015, PFM plans to start raising another ₹ 350-400 crore for a second, similar-themed fund later this year, that will finance redevelopment projects in the city.
In a significant initiative earlier this year, PFM said it would offer an open line of credit to some of the country’s top realty firms to enable them to buy land and acquire projects.
The line of credit includes different forms of capital such as equity, structured debt and construction finance. Around 35% of the total amount has already been disbursed and the plan is to invest the remaining amount in the coming months, given the good response that PFM has got, Jijina said.
PFM has about ₹ 32,000 crore of assets under management, which includes equity investments and commitments made but not yet disbursed.
Alongside the new equity investment plans, PFM continues to disburse debt to developers as usual, with construction finance occupying a chunk of it. Construction finance, which comprised only 4% of its debt book even a few years back, constitutes around 38% of its total debt lending. Given the demand for construction funding, Jijina said, the plan is to push it up to 50% of the debt book.
Earlier this year, PFM also started lending to under-construction and early-stage office projects.
Of the targeted ₹ 5,000 crore, it has already sanctioned around ₹ 2,500 crore to various office developments.
Piramal’s financial services business was recently restructured and integrated into a larger, more valuable entity in a prelude to a spin-off of the unit and Piramal Enterprises Ltd’s healthcare business, said a 15 July Mint report.
The real estate investment business under 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. Jijina now oversees the entire financial services business under PFM.
Despite the apparent abundance of liquidity in the sector, investors have been fairly cautious given the uncertainties that continue to prevail.
Private equity investments in real estate dropped 42% to $954 million between January and June this year, compared to $1.66 billion a year earlier, according to data by investment tracker VCCEdge and Mint research.
“There is perpetual need for equity in real estate, particularly due to the fact that the last few years have been largely dominated by debt instruments. In the current scenario, every developer wants equity but it is not available to all. Only a few good quality developers are able to attract equity investments, which primarily depend on the credit profile of developers and their track record," said Chintan Patel, partner, deal advisory, real estate and hospitality, KPMG India.