Caisse de depot et placement du Quebec (CDPQ), one of Canada’s biggest public pension funds, will spend Rs 1,750 crore ($250 million) to increase its stake in Piramal Enterprises Ltd via a preferential allotment of compulsory convertible debentures (CCDs) and is likely to bring in another Rs 134 crore ($19 million) by participating in a proposed rights issue. The infusion will be a part of a larger fundraising worth Rs 5,400 crore ($770 million) that will include the rights issue.
On Friday, the board of billionaire Ajay Piramal-owned conglomerate approved the fresh capital raise. The development comes amid consolidation and liquidity tightness in the NBFC sector, and the Piramal Group feels that with reduced competition, the company is well-positioned to take advantage of several organic and inorganic growth opportunities, “particularly in the retail financing space across both housing finance and consumer lending”.
These funds will help the diversified firm strengthen its balance sheet, fortify and insulate it against any external shocks to the financial system in the future as well as enable the group to “tap organic and inorganic opportunities arising out of market consolidation across our financial services, pharmaceuticals and information management businesses”.
After the announcement, shares of Piramal Enterprises, the flagship listed entity of Piramal Group, fell over 9% to Rs 1,567.4 apiece.
“The rights issue of Rs 3,650 crore (about $520 million) at Rs 1,300 per share is intended to give an opportunity to all existing shareholders to participate in the capital raise at an attractive price. The promoters will also participate,” said Piramal Enterprises.
The Piramal board entered into an agreement with CDPQ approving issuance of 115,894 CCDs of the face value of Rs 1.51 lakh apiece. The CCDs shall bear an interest of 9.28% per year calculated on the face value of the CCDs commencing from the date of their allotment and until the date of their conversion, payable in three half-yearly instalments. For CCDs, conversion price is Rs 1,510 per share or the conversion ratio of each CCD is 1:100 (one CCD shall be converted into 100 equity shares).
The preferential allotment will take place on 25 November 2019 and the rights issue is expected to be completed by the end of February 2020, the company said.
CDPQ has a long-standing partnership with Piramal Enterprises and holds 3.68% stake as of October 18. It had participated as the anchor investor during the firm’s previous capital issuance, investing $175 million out of the total issue size of $750 million in 2018.
Additionally, CDPQ’s real estate subsidiary, Ivanhoé Cambridge, has committed $250 million towards a co-investment platform with Piramal Enterprises to provide long-term equity to blue-chip residential developers.
Other foreign investors include East Bridge Capital, which owns 7.51%; Wf Asian Smaller Companies Fund Ltd with 1.21% stake; and Aberdeen Global Indian Equity Limited with 1.01% holding. Government-owned Life Insurance Corporation of India (LIC) owned 8.29% stake in Piramal Enterprises as on September-end. After the rights issue and conversion of debentures, CDPQ's stake will rise to 9%, making it the single-largest institutional investor.
After the fund-raise, the company’s equity capital will rise to approximately Rs 32,000 crore from Rs 26,700 crore as on September-end 2019. The debt-to-equity ratio of Piramal Enterprises improved to less than 1.7 from 2 as on September-end.
“This fresh equity infusion from CDPQ, an existing global, marquee, long-term investor, especially in the current market scenario, is a validation of the robustness of the company’s business model and long-term growth trajectory,” said Ajay Piramal, chairman of Piramal Enterprises.
Since 1988, the promoters have increased their stake in the company, which currently stands at 46.10%.
In June 2019, VCCircle reported that India Resurgence Fund, a joint venture of Piramal Enterprises and the credit affiliate of private equity firm Bain Capital, will raise a corpus of $750 million (around Rs 5,250 crore) over the next few months to increase its investments in the distressed assets segment.
In the same month, VCCircle had also reported that Piramal Enterprises was in advanced talks to take over the retail loan book of an embattled large group's housing finance company.
Piramal Enterprises is the largest business of the Piramal Group and is engaged in pharmaceutical and financial services including wholesale and retail funding across various sectors including real estate.
Its lending business is operated through Piramal Capital and Housing Finance Ltd, a 100% subsidiary of Piramal Enterprises.
In June 2019, Piramal Enterprises sold full stake in Chennai-based Shriram Group's Shriram Transport Finance for Rs 2,300 crore and is further looking to exit Shriram Capital Ltd, in which it holds a 20% stake.