For its half-built home ventures, Piramal courts investors as real estate wrestle with shutdown

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Piramal Enterprise managed by billionaire Ajay Piramal is looking to rope in new investors including hedge funds alongside its real estate-focused shadow bank business to help complete ventures and help raise cash to finance working capital for the real estate projects it lends to so that they don’t fester half-built.

The focus is on developers the lender has already provided loans to, said Khushru Jijina, Managing Director of Piramal Capital & Housing Finance Ltd’s in an interview.

Piramal predictions of having to fund up to 15 billion rupees ($200 million) in working capital to developers to complete projects presuming repayment by the firms are insignificant due to coronavirus pandemic.

India’s real estate industry is struggling with a persistent freeze that slows down development and dramatically crimps new sales in an industry that is still struggling. Developers relied on borrowers like Piramal to finance the cash needed to complete partially-constructed projects to fill financing holes arising from lack of revenue. 

Jijina also added “Bringing in the right co-investor will give the developer a consistent flow of working capital, which in turn will ensure that the project is completed and that our asset quality is sustained. Moreover, we don’t want a friend involved just in blatant buyouts and then just split.”

India’s shutdown has exacerbated the problem, as the country is expected to tip through its first decades-long economic downturn. 

Incomplete ventures threaten further straining shadow bank balance sheets. Well before the virus contagion, the sector had struggled. The crash of Infrastructure Leasing & Financial Services Ltd. in 2018 ignited a credit crisis that has now asserted other victims including Dewan Housing Finance Ltd. and another real estate lender, Altico Capital India Ltd.

As of April 2020, Piramal earned as much as 80 billion rupees by debt sales in the financial year. This, coupled with its 40 billion cash rupees at the end of March, would help Piramal to keep funding its developers while also repaying the 100 billion debt rupees due in the six months ending September, Jijina said.

Piramal is escalating a move to broaden its loan portfolio, by cutting off the share of its larger loans. The lender also seeks to reduce debt, particularly by disbursing it with funds generated from raising collections from its lenders.

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