MUMBAI: A potential investment by Japanese multinational conglomerate SoftBank into the financial services arm of the Piramal Group will likely depend on the Indian company’s willingness to aggressively move into the consumer finance segment away from its current wholesale focus, two people in the know of the matter said.
Billionaire industrialist Ajay Piramal has held talks with at least four private equity funds, including SoftBank, for an investment in Piramal Capital and Housing Finance (PCHFL), said three people close to the development.
SoftBank’s final decision to back the Mumbai-based group will hinge on splitting its retail and wholesale books and adding a technology layer to the business, people familiar with the detailed discussions between the two parties said, on the condition of anonymity.
The Piramal Group and SoftBank did not respond to ET’s emailed queries.
Piramal Finance and Piramal Capital merged to form Piramal Capital and Housing Finance (PCHFL) in March last year. The group’s wholesale real estate exposure stands at 63%, while housing finance forms 9% of its overall book. With a total book size of Rs 56,000 crore, Piramal Capital’s real estate loans account for Rs 40,160 crore. The group is, however, looking to expand into other areas of retail consumer lending through housing finance.
SoftBank’s interest in Piramal’s business, with no underlying technology, stems from its bullishness on the overall financial services and consumer lending sector.
Rajeev Misra, who heads Soft-Bank’s $100 billion Vision Fund, told ET in an exclusive interview last week that financial services was the biggest multiplier of gross domestic product in any economy, but it was broken in India. “The confidence is broken, the multiplier is not working, you talk to any small- and medium-sized enterprise, for them getting financing is a problem. It is a great opportunity and something we understand very well, especially consumer finance. While wholesale is being done, the scale is in consumer. We will invest $1-2 billion in this space over the next six months,” Misra said.
SoftBank has bet big on Paytm, where it holds around 20% stake. The Japanese group is, however, keen to plough capital to leverage on consumer lending in India, after seeing the exponential growth of Ant Financial, an Alibaba affiliate. SoftBank is an early investor in the Chinese internet giant Alibaba founded by Jack Ma.
Raising capital for non-banking financial companies (NBFCs) and housing finance firms, especially wholesale financiers, has been challenging after Infrastructure Leasing & Financial Services (IL&FS) defaulted on repayments to banks in September last year. These companies also face increased cost of borrowing due to the NBFC crisis.
ET reported in its June 25 edition that Piramal Capital was looking to raise as much as $400 million through external commercial borrowings to ease liquidity pressure. “With consolidation in the real estate sector, lenders like us will inevitably have to participate in large transactions, and we plan to coinvest with like-minded partners, such as pension funds and foreign banks on large deals,” Piramal, the chairman of the group, said earlier.
The group has liquidated its exposure in Mumbai-based Lodha Developers to reduce its single borrower limit in the first quarter of this financial year. As of March 2019, a significant portion of Piramal Enterprises’ capital, deployed on a consolidated basis, was in its financial services business. “The resilience of PCHFL’s business model to external shocks will depend on its ability to raise long-term funding and infuse fresh equity,” according to a report by ratings agency Icra.
Piramal has also partially exited from the Shriram Group and is in the process of liquidating the rest of its holding in the conglomerate. The group pared its stake in Shriram Transport Finance by selling 10% in the open market.
[“source=economictimes.indiatimes.”]
