LIC, IFC come to the aid of Ajay Piramal's financial services business
Anand Adhikari July 20, 2019
"Many things can happen very quickly in times of crisis," said German politician Wolfgang Schauble. Quite true! If one cuts to flashbacks, one can recall numerous stories of countries, corporation and people fighting hard to turn the crisis on its head. The current crisis in the non-banking financial company (NBFC) space witnesses the similar fire-fighting by promoters and management teams.
For billionaire Ajay Piramal, there are reports that people with moneybags have often approached him. First reports trickled in that Flipkart co-founder Sachin Bansal has infused Rs 200 crore in Piramal Enterprises, followed by the news that Japanese multinational conglomerate SoftBank is taking up a stake in the diversified corporation with interest in financial services, pharma and healthcare. According to sources, Piramal has managed to get the life insurance giant LIC on board in its housing finance subsidiary Piramal Capital and Housing Finance with a credit line of Rs 1,500 crore. LIC money has come at an interest rate of 9.5 per cent, which is almost equal to what one pays to a bank. Similarly, another big name that has reposed trust in the fledgling subsidiary is the International Finance Corporation (IFC). "There are few other big names that are considering investing in the company," say sources.
Sources added that the new money from LIC and IFC has helped the company meet its redemption requirement to certain investors including banks. Sources say redemption of Rs 1000 crore alone was made to Birla Sun Life and Rs 500 crore to private sector IndusInd Bank.
Piramal has a flourishing financial services business, which had a high real estate exposure, the epicentre of current NBFC crisis. The Piramal Group has been reducing its exposure from wholesale real estate lending to retail home loan and corporate lending. In fact, the wholesale real estate exposure has been reduced from a high of over 80 per cent four years ago to around 60 per cent now. The retail housing finance, which is a new business, is about 10 per cent of its exposure. There is a close link between wholesale real estate finance and retail finance as the group taps home loan customers for properties against which it has provided loans.
Unlike many other NBFCs, Piramal enjoys a good reputation in the market. As an entrepreneur, he turned a small textile business into a pharma giant through multiple acquisitions. Later he sold the business to Abott Labs for $3.8 billion. He also has a board seat in Tata Sons, the holding company for Tatas. More recently, he hogged the limelight when his son married industrialist Mukesh Ambani's daughter. But, things have been moving fast for Piramal over the last few months. He has decided to sell his strategic stake in Shriram Group. This was a strategic investment for him as he contemplated merging Shriram Group's businesses with IDFC Bank, which did not happen over valuation differences. This was a long-term investment where he had synergies with his own financial services businesses. Later, he decided to exit. The Softbank investment, if happens, will mean restructuring of the group too.
Many suggest the pressure of asset liability mismatches will be surely building up for the man, as there is some fund crunch in the market. Mutual funds are withdrawing themselves, so are many big investors.
Currently, Piramal Enterprises, the holding company, quotes at a market valuation of Rs 40,000 crore, consolidated revenues of Rs 13,528 crore and profits of Rs 1,470 crore in 2018-19. Almost half of the revenue contribution comes from financial services that include wholesale lending, housing finance and alternative asset management. In terms of the capital, a major portion -almost 60 per cent - is employed in financial services.
Piramal Capital and Housing Finance Ltd, formerly Piramal Housing Finance Ltd, has revenues from operations at Rs 5571 crore with profits of Rs 1442 crore. The housing finance business has a loan book of Rs 5,188 crore. This business, which was launched two years ago, has presence in close to two dozen cities. Major areas are retail home loans, loan against property, construction finance and affordable housing.