The board of Piramal Enterprises on Friday approved fresh capital raise of Rs 5400 crore ($770 million) through a rights issue of Rs 3,650 crore and preferential allotment of compulsory convertible debentures (CCDs) worth Rs 1,750 crore, to capitalise opportunities that may come up in a slowdown-hit economy.
The rights issue at Rs 1,300 per share is open to all its existing shareholders and the promoters will participate in the issue. Currently, the promoter group holds 46 per cent in the company. In addition, the company plans to raise Rs 1,750 crore ($250 million) through a preferential allotment of CCDs (at a conversion price of Rs 1,510 per share) to Canadian institutional investor, Caisse de depot et placement du Quebec (CDPQ). The preferential allotment will take place by November-end and the rights issue is expected to be completed by February 2020.
Piramal Enterprises was planning to infuse Rs 8000-10,000 crore fresh capital in 2019-20. It had infused Rs 1,700 crore of equity in the financial service business few months ago via stake sale in Shriram Transport Finance (SHTF).
"These funds will further strengthen our balance sheet, fortify and insulate us against any external shocks to the financial system in the future as well as enable us to tap organic and inorganic opportunities arising out of market consolidation across our financial services, pharmaceuticals and Information Management businesses," said Ajay Piramal, chairman, Piramal Enterprises.
CDPQ had participated as the anchor investor during Piramal Enterprises' previous capital issuance, investing $175 million out of the total issue size of $750 million. Additionally, CDPQ's real estate subsidiary Ivanhoe Cambridge has a $250 million co-investment platform with Piramal to provide long-term equity to blue-chip residential developers.
The funds will be used in financial services to enter consumer lending, increase share of housing finance targeting self-employed customers and tapping newer markets in Tier-II and Tier-III cities, selective wholesale lending, consolidation opportunties in retail financing and managing wholesale loan portfolios of distressed entities. In the pharmaceutical side, efforts will be to grow organically and inorganically in global pharma and India specific consumer products, re-entry into domestic formulation and domestic consumer products.
In the current environment, Piramal Enterprises is focussed more on reducing the share of lump exposures, raising more long-term liabilities, preserving balance sheet liquidity and the company's plan to raising capital for the financial services business would help it reduce leverage and improve incremental cost of funds, said analysts with brokerage firm Motilal Oswal.
The company's loan book of its financial services sector had declined by 6 per cent to Rs 53,000 crore by the end of second quarter of FY20, as the company was cautious on disbursements in the second quarter. Although retail housing loans grew by 12 per cent, the real estate and corporate lending loan book had also declined by 6 per cent from the previous quarter. The share of bank borrowings and tier-II bonds was up 400 basis points to 67 per cent during the quarter, while that of commercial papers had reduced by 500 basis points to 2 per cent. Total CP (commercial paper) exposure has now come down to Rs 14,800 crore, noted the analysts.
The management said that the company has received new liquidity of Rs 45,000 crore in the last one year and got Rs 24,000 crore in long-term funds from banks. Piramal Enterprises's financial services business has repaid Rs 30,000 crore debt obligation so far and expect borrowing cost to normalise in FY21 from the current elevated levels. The analyst report said Piramal's top 10 loans exposure is down from Rs 18,000 crore as of March 2019 to Rs 14,000 crore as of September 2019. The management is planning to bring it further down to Rs10,000 crore by March 2020. Now 81 percent of the real estate projects funded are in the affordable and mid income segment. The company requires Rs 1,300 crore of working capital financing exposure till July 2020 to fund its lending activities. Piramal is also exploring options of re-entering the domestic pharma business and entry would largely be by inorganic acquisition.