Piramal Fund Management, real estate funding arm of Piramal Enterprises, is one of the most aggressive fund managers in the segment. It disburses around Rs 1,500 crore every month to developers. It now aims to migrate from fund management to doing joint ventures with global funds. Khushru Jijina, managing director, Piramal Fund Management, talks to Raghavendra Kamath about the company's strategy. Edited excerpts:
You are to launch a scheme which will provide equity for plotted development projects. What was the idea behind launching such a product?
We have been giving debt to developers of plotted developments for the one and a half years. Even in a sluggish market, when sales of apartments were slow, sales of plots never became slow.
Second, because the developers had taken debt, they needed to sell more and discount the price to ensure servicing of interest and principal. Now that we are giving them equity for four to five years, there is no pressure on the developers to sell more in the initial period.
Some fund managers say you are lending at 16 per cent to developers, which they think is impossible to follow. They say you are doing it to capture market share. Please comment.
We are not a PE fund. Our debt book is mostly of proprietary capital. We give funds even at 12 per cent to good developers, for construction finance. Our rates are competitive.
We do construction finance between 12 to 14 per cent and structured debt at 16 to 18 per cent. We are not doing this to capture the market. We are capturing market share because of our wide range of products and ability to meet a developer's need at every stage of his project.
You have talked about signing a joint venture with a global pension fund or a sovereign fund to provide equity to developers. What is the rationale behind that?
We have a joint venture with CPPIB (Canada Pension Plan Investment Board) for providing debt. However, we are seeing a lot of demand for pure equity and preferred equity. We have started deploying a combination of those. To scale this up, we will tie up with a sovereign fund or a pension fund, at an appropriate time.
Fund managers say if you do joint ventures, you have to take each and every deal to them and wait for their approval. A blind pool is better.
Not really. We tend to showcase every deal we originate. Even if our partner does not like a deal, we will go ahead with funding if we are convinced. It is better to have a partnership with marquee global names which can bring best practices and international experience. With a long-term partner, we can give more patient money to developers.
Fund managers say your apartment fund is a risky preposition given that property prices are either stagnant or sliding.
We are not betting on a sale price increase for our minimum assured returns. The discount to current prices is enough to ensure our internal rates of return (IRRs). An increase will only enhance our returns.
You had planned a Rs 700-crore domestic fund. Could you please tell us about its status?
We have delayed it. If we do a partnership, we will not raise a new fund as their will be a conflict of interest.
Right now, our priority is a partnership.
You had sought consent from investors in Indiareit Fund Scheme III to extend the tenure by a year. Could you please share the progress?
We have some assets in Hyderabad in that fund. They are in the process of being monetised. We have returned 100 per cent on the capital and are continuing to give returns.
You said the ratio of debt and equity you provide is changing. Could you elaborate.
Till 2014, we were giving 95 per cent debt and five per cent equity. From October 2014, developers are coming to us for equity, especially, to buy land.
Today, our portfolio is around 65 per cent debt and 35 per cent pure equity or preferred equity.