Masayoshi Son-led SoftBank is in the final stages of due diligence for investing $1 billion in Piramal Enterprises, it is learnt. The cash will go to the Mumbai-based company’s financial services arm, which primarily deals in wholesale and corporate debt, a source in the know said. The deal would peg the value of the financial services arm of Piramal Group at over $4 billion, estimates suggest.
The Japanese conglomerate is likely to route this investment through its $100-billion vision fund, the source said.
The two sides have been locked in conversation for a few weeks now and the handshake agreement was done earlier last week, another source pointed out. The last details of the due diligence process are pending and the deal is officially expected to close in about two months.
This deal is a departure from SoftBank’s usual business style. While it has traditionally shied away from listed companies in India, this time the proposed investment will land in one of the listed entity’s subsidiaries. With this move, Softbank will not have to do secondaries with smaller retail investors, who would have demanded a steep premium.
SoftBank did not respond to a request for comment till press time. Piramal Enterprises issued a statement to the exchanges saying, "We write to inform that no such proposal... has been placed for approval of the board or any of its committees." The company, however, did not respond to a Business Standard query on whether due diligence was on for a deal with SoftBank.
It is possible that the financial services company will not remain a subsidiary much longer as the two plan to set up a fintech platform, which will look to give loans across the board.
The ongoing deal may disrupt the pecking order in the financial services space, people in the know said.
Insiders believe an exit plan has already been devised. The proposed deal could help SoftBank realise its ambition of having a big fintech platform in India, one of the sources said.
For the Tokyo-headquartered conglomerate, this is a safe choice. Piramal Group is well networked, so it won’t have to spend too much on marketing or technology. And it is likely that the spin-off entity will not have to bleed to gain market share. It also gives SoftBank an entry into real estate in India, even if it is via debt. For the Piramal Group, it will come as a shot in the arm, according to an analyst. The Mumbai-based company has been looking to raise capital for a while and there are very few investors who could write a cheque that large. Piramal may also try to use the Oyo formula when it comes to corporate loans. That is, the company will be able to send competitors packing by simply having more capital than others. The ability to overspend dissuades upstarts and incumbents from making any aggressive moves.
Over the last eight months, there has been a liquidity crisis in NBFCs and the cost of raising capital has been extremely high, forcing lending companies to come up with creative solutions.