The cash-rich Ajay Piramal Group, which recently sold its core business of formulations to Abbott for $3.7 billion, formally announced its entry into financial services business. In another significant move, the public listed pharmaceutical company Piramal Healthcare Ltd. also announced that its board has decided to buy the real estate equity fund management business housed under Indiareit Fund.

The first move is part of the group's business diversifications. In fact, Piramal's peers, the Singh brothers of formerly Ranbaxy Laboratories, built a multi-billion dollar financial services business - Religare Enterprises - after selling their pharma business to Daichi Sankyo. Besides, India's leading industrial groups like Reliance Industries have also identified financial services as a growth area. RIL, for instance, has tied up with DE Shaw for the financial services foray.

The company also said it is eyeing business opportunities in lending and fund management for infrastructure and allied sectors. The other areas of financial services the company will enter are not known as of now. According to sources, former SBI chairman AK Purwar is leading the company's foray into the sector. Purwar is already heading the group's healthcare focused private equity firm India Venture Advisors.

Rejigging Fund Business

Piramal Healthcare informed stock exchanges today that its board has approved acquisition of Indiareit Fund Advisors Pvt. Ltd. and Indiareit Investment Management Company, Mauritius, for a total deal value of Rs 225 crore or $50.3 million.

Indiareit Fund Advisors Pvt. Ltd is the advisors to the Indiareit Fund which is an India focused real estate private equity fund with assets under management of Rs 1,950 crore ($436 million). Indiareit Investment Management Company, Mauritius, is manager to real estate private equity funds investing in India through the FDI route, with funds under management at around $ 430 million.

Indiareit Fund Advisors Pvt. Ltd is being acquired for Rs 110 crore while Indiareit Investment Management Company, Mauritius is to be acquired for Rs 115 crore.

The two entities would be housed under one or more subsidiaries of the pharmaceutical firm.

Media reports had speculated that Ajay Piramal Group was in advanced stage of talks to sell its 85 per cent stake in Indiareit to financial services firm of the billionaire brothers Malvinder and Shivinder Singh for around Rs 250 crore. Ramesh Jogani, managing director of Indiareit owns the balance 15 per cent in the firm.

Piramals were looking to exit to avoid a conflict of interest with their existing real estate business that is into land acquisition and development. Realty consultancy firm DTZ was the advisor for the transaction, media reports had said that added that the two sides had signed non binding term sheets. But few days ago reports said the deal that was to close by mid-April was called off.

Selling Business Without Losing Control

This deal marks yet another case of a business family selling a privately owned business interest to a public listed firm in which they are majority owners. This means they are selling the business to a company with public shareholders, but they themselves control.

Last month Malvinder and Shivinder Singh had struck a similar deal where they said they will sell their 86 per cent stake in the IPO bound country’s largest diagnostics chain Super Religare Laboratories(SRL) to public listed hospital company promoted by them Fortis Healthcare.

Piramal Healthcare has also announced demerger of new chemical entity (NCE) Research Unit of its public listed associate firm Piramal Life Sciences Ltd into itself. Piramal Healthcare owns 17.8 per cent direct equity stake in the drug research firm.

One equity share of Piramal Healthcare will be issued and allotted for every four shares of Piramal Life Sciences Ltd. Piramal family owns a large stake in the research firm and will indirectly boost their holding in the cash rich Piramal Healthcare.

Piramal Life Sciences Ltd scrip lost 4 per cent value on Friday at BSE in a strong Mumbai market, showing investors were not too happy with the proposed intra group transaction.

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