Taking its diversification strategy further, Piramal Group’s financial services arm Piramal Fund Management has expanded its portfolio to offer flexi lease rental discounting (LRD). Through these transactions, the fund will discount future cash flows of completed and leased commercial assets including office blocks and retail malls, said a top company official.
The fund has already identified an initial pipeline of deals and is in advanced talks with two developers–one each in Mumbai and Bengaluru–to conclude LRD deals totaling Rs 1,500 crore for their leased office complexes. The fund intends to scale its book size up to Rs 10,000 crore by 2017-18.
“This is part of our diversification and innovation strategy. We believe that we are in the business of forging strong relationships on the back of our ability to act as a provider of perpetual capital and have been working on perfecting this structure for many months. Through this innovative form of flexi LRD, we can be with the developer partners for 18 years including first six years of construction finance and then LRD with tenure of up to 12 years,” Khushru Jijina, MD, Piramal Fund Management told ET.
According to Jijina, the fund is targeting owners and holders of marquee assets and offering them a competitive and flexible form of finance while enabling them to raise more money against the same asset when compared with traditional forms of lease rental discounting.
The fund will be financing the developer up to 75% of the discounted cash flows from the property for tenure up to 12 years. While the LRD will be for 70% of the cash flows, additional 5% will be loan against property and the developer will be paying interest on this additional part only at the end of the tenure. The interest rate for these financing deals will be range between 10.25% and 11% on floating basis.
The two LRD deals that are currently in advanced stage of discussions are for a 3.5 lakh sq ft and 3.3 lakh sq ft office projects with both leased up to 95%.
“We have constantly been able to anticipate changing market scenarios and introduce newer product categories and innovations in the interest of our developer partners. From being biased towards residential segment a year ago to introducing debt against commercial projects and adding an innovative / flexible LRD product today is another attempt to create an even more diversified portfolio,” Jijina said.
The overall business has exhibited a strong growth rate but the various verticals within keep shifting based on market trends as well as anticipating the needs of our target customer i.e. the Tier 1 real estate developer community, he added.
Through flexi LRD, Piramal Fund Management will be focusing on the country’s top six property markets including Mumbai, National Capital Region, Bengaluru, Pune, Chennai and Hyderabad.
Piramal Fund Management, the wholesale fund and funding arm of the Piramal Group, focuses on real estate addressing funding needs across entire capital stack from early stage private equity to senior secured debt and even construction finance. The fund’s total book size stood at around Rs 19,170 crores as on September end. It also operates in non-real estate sectors including operating infrastructure and renewables through Structured Finance Group.
Under the phase I of it Piramal Preferred Partner program’s proposed credit limit of Rs 15,000 crores, it has so far sanctioned Rs 8,000 crores. Its Rs 500-crore Mumbai Redevelopment Fund, launched in April 2012, is fully deployed and has returned over 90% to investors, while Rs 570-crore Apartment Fund is 85% deployed.