Apollo Global Management, Piramal Capital in talks for $500-million loan

US-based private equity (PE) fund Apollo Global Management, Inc. is in final stages of talks with Piramal Capital & Housing Finance, part of Piramal Enterprises, on a loan of $300-500 million (Rs 2,220-3,700 crore), according to sources in the know. 

This will be the one of the largest debt deals in home finance/non-banking finance this year. 

The deal is structured in such a way that Apollo will come in as senior lender in certain developer loans Piramal will give. By that, it (Apollo) will have the first rights on a project’s cash flow.

Apollo will get a choice to pick and choose Piramal’s loans to developers, said sources. 

“According to the deal, Apollo will give debt to Piramal at around 18 per cent and the loan-to-value ratio will be 65-70 per cent of the value of loans Piramal lent property developers,” said a source. 

Earlier this year, Indiabulls Housing Finance did a similar deal with Oaktree Capital Management. By that the latter came in as senior lender to the loans of Indiabulls, which had raised around Rs 2,200 crore through the deal. 

 

 

When contacted, the Apollo Global Management, Inc. spokesperson said the fund manager did not comment on market speculation. The same was the reply of the Piramal Capital & Housing Finance spokesperson.

Like other non-banking financial companies (NBFCs), Piramal faced headwinds after the Infrastructure Leasing & Financial Services defaults in August 2018, which posed liquidity challenges for it. 

This is a major deal for Piramal after it sold loans worth Rs 2,000 crore (given to Lodha Developers) to Goldman Sachs Group, Inc. last year. The financing arm of Piramal has been reducing the share of wholesale loans and increasing that of retail loans. 

Piramal Capital & Housing Finance had a loan book of Rs 51,265 crore as of June this year. Its wholesale book, which included real estate and corporate loans, reduced by 11 per cent between March last year and June this year. Its exposure to top 10 accounts reduced by 21 per cent during the period. 

Like Piramal, NBFCs and housing finance companies (HFCs) are selling riskier developer loans to special situation funds like Oaktree. 

Property developers, too, are facing liquidity challenges due to lack of finance and dwindling cash flows. 

This year, such loans of over Rs 6,000 crore have been sold or refinanced by the likes of Edelweiss’s NBFC arm and Indiabulls Housing Finance. 

Loans of about Rs 80,000 crore could be downsold or refinanced this financial year due to Covid and related liquidity issues, said bankers who deal in such transactions. 

Developer loans of about Rs 3.5 trillion are still on the books of NBFCs/HFCs. Part of those needs is to find a new home, experts said. 

ECL Finance, the NBFC arm of Edelweiss Group, sold real estate loans worth Rs 4,000 crore to Farallon Capital Management, L.L.C. and SSG Capital Advisors, LLC, according to recent reports. 

“We intend to sell-down another Rs 3,000 crore of the wholesale portfolio in 2020-21 and plan to bring it down to zero in the next two years,” the Edelweiss spokesperson told Business Standard. 

IIFL Finance, part of IIFL Group, is in talks with investors such as SSG Capital Advisors, LLC and Apollo Global Management, Inc. to sell its real estate book of Rs 4,560 crore, reports said recently.

However, Balaji Raghavan, managing partner and senior fund manager at IIFL, said no such deal had taken place. 

IIFL Finance is in talks with investors to raise funds and get last-mile financing to complete projects, said Raghavan. 

Industry experts say selling loans is a good move in the current context. 

“Most of the NBFCs are facing a liquidity crunch and hence, are trying to conserve whatever capital is available by being selective in investment. Capital availability for NBFCs from domestic avenues remains scarce and, therefore, selling loan portfolios to PEs/special situation funds with better liquidity makes a lot of sense,” said Vishal Srivastava, president (corporate finance), Anarock Capital.