The real estate investment platform of Piramal Enterprises, Piramal Fund Management, has formally entered construction finance as part of its debt offering and has approved nine proposals aggregating Rs 1,100 crore, it said on Tuesday.
The firm is now aiming to add to it and build its construction finance loan book to the size of around Rs 5,000 crore ($803 million) by March 31, 2016 or end of next financial year.
The initial transaction volume is spread across Mumbai, Delhi NCR, Bangalore, Pune and Chennai, with projects located in micro markets. Delhi-based Landcraft Developers, Rajesh Builders, Chennai-based True Value Homes and Gurgaon-based Bestech Group are some of real estate developers whose projects have been approved for construction finance so far.
Earlier, the firm conducted debt deals as a combination of structured funding, funding towards refinance, funding towards late stage/last mile completion. These deals were also senior secured in their nature but had more flexible structures. With construction finance, Piramal Fund Management is entering the space usually occupied by banks wherein it is strictly for construction with disbursements also taking place as per construction milestones.
“With construction finance, we have consciously completed the last remaining element in our suite of product offerings. This makes sense for our platform as well as for our development partners as we are now able to further our engagement with them and fund the entire project life. We are looking at many more such investments where the developers are experienced, projects are profitable and de-risked, and our investment is ring fenced,” says Khushru Jijina, managing director at Piramal Fund Management.
The funds have been earmarked across a combination of late stage, mid-market residential developments in both city-centric as well as suburban locations. In one instance, funds are also intended for construction of a brown-field commercial office development. These facilities range from 3-5 years each, with a sufficient principal moratorium period to allow the project cash-flows to stabilise.
Piramal Fund Management provides capital from early stage equity to late stage debt and now construction finance and is therefore able to act as a perpetual provider of capital within this space.
Typically, structured equity or structured debt investments would often get refinanced by banks or other NBFCs once the projects would achieve certain milestones - with construction finance, the platform is able to extend the overall tenure of their relationship with a project by not requiring the development partner to refinance once the project matures.
The firm has announced its intention to move into construction finance last year when Piramal Capital, the financial services unit of Piramal Enterprises, merged its realty PE fund and debt business under one platform.
(Edited by Joby Puthuparampil Johnson)