Piramal Finance also seeks to form a JV for slum redevelopment investments, lend to new sectors and begin housing finance in four months' time
Bengaluru: Piramal Finance Pvt. Ltd, which houses the entire financial services business of the Piramal Group, will start lending to smaller corporate groups, form a joint venture platform for slum redevelopment investments, lend to new sectors and begin housing finance operations in four months’ time, said a company executive.
The Mumbai-based firm is setting up a new line of business where it will focus on emerging corporate lending, for transactions of Rs30-90 crore, similar to lending to small and medium enterprises (SME), a segment it hasn’t tapped so far.
The year started with Piramal Finance announcing its new housing finance business, where 70-75% of its lending book will offer housing finance to individuals and the rest will comprise of construction loans of up to ₹ 50 crore to small developers.
Under the real estate investment business, the company is at an advanced stage of forming a joint venture with another investor to do equity and structured lending deals in slum redevelopment projects in Mumbai.
“Apart from achieving growth, the underlying theme this year is to diversify our portfolio and adopt a retail-centric approach towards lending. There is huge potential to expand our lending base and it is in line with our strategy to improve the quality of our lending book as well as diversify risks," said Khushru Jijina, managing director at Piramal Finance.
Piramal Enterprises Ltd (PEL) has recently completed a second and conclusive restructuring of its financial services business, by moving all assets and liabilities related to lending to real estate and non-real estate projects to its unit, Piramal Finance. Last year, the financial services business was first restructured and integrated in a prelude to the spin-off of the unit and PEL’s healthcare business.
Piramal Finance’s Structured Finance Group (SFG) or its non-real estate lending business is expected to grow significantly this year. SFG’s lending book is expected to double in 6-8 months from Rs2,160 crore as of September, Jijina said.
SFG has already started lending to new sectors such as cement, entertainment, and security services and is actively evaluating other sectors such as engineering, healthcare, and automotive components. Lending will be a mix of senior debt, loan against shares and structured debt which will include large transactions of Rs800-900 crore as well as smaller Rs150-200 crore deals.
Jijina said a large portion of the company’s growth will come from SFG this year and the pace of growth may even be faster than its staple real estate funding business.
Piramal Finance’s real estate book, which includes both debt and private equity funds, deployed and as well as sanctioned loans that have not been disbursed, was around Rs35,000 crore as on 31 December, 2016.
“We saw green shoots of recovery in real estate till October, after which demonetization impacted customer sentiment and sales dipped. We have reached out to our developer partners asking them not to stop construction and have offered additional financing to complete construction," Jijina said.
Besides the slum redevelopment investment plans, Piramal will also set up a $300 million equity platform with a Canadian pension fund in a couple of months.
Under its flexible lease rental discounting (LRD) model, which was launched last November in a bid to diversify into commercial realty, the company has already signed three deals of Rs1,500 crore and disbursed and sanctioned funds for LRD are expected to touch Rs10,000 crore in the next 15-18 months.
While structured debt lending and equity investments to residential projects will continue, Jijina said he sees a lot more growth in rent-yielding stabilized assets.
Last year, Piramal announced a proposed credit limit of Rs15,000 crore to top-of-the line developers to enable them to grow faster. Around 60% of this has already been committed and the firm is now taking this ahead and planning to offer holistic funding solutions to established developers, not on a project basis but to iron out cash flow mismatches. It will invest in large deals of Rs1,000 crore and above.
“Piramal’s next strategy of growth will be to capture new accounts, offer new products and retain existing clients. The group has gone about building their (financial services) platform in an organized manner, where they started with real estate and then moved to non-real estate and then to housing finance, which gives them wider reach," said Nitin Gupta, managing director, Macquarie Capital.
In real estate, Gupta said Piramal will continue doing large ticket deals because that differentiates them from the others.
“Their business approach is good. They understand the pain points of developers and offer them financing solutions," he said.
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