Bengaluru: Piramal Enterprises Ltd has entered into a strategic partnership with Ivanhoé Cambridge, a real estate subsidiary of Caisse de dépôt et placement du Québec (CDPQ), Canada’s second-largest pension fund, to provide long-term equity capital to top residential developers across five cities.
Ivanhoé Cambridge will allocate an initial $250 million and Piramal will commit an additional amount and co-invest between 25% and 50% in each transaction. The total investment may scale up to $340 million between the partners.
The capital, which will be in the form of pure and structured equity, will be deployed in about three years with a seven-10-year investment horizon. Like in most other so-called platform arrangements, this too will see co-investments in each transaction between Ivanhoe, Piramal and the concerned developer.
“Given the scale of our existing real estate offering and roster of existing developer relationships, the partnership will enable us to execute on very compelling opportunities to deliver high quality residential developments in the local markets that we service,” said Ajay Piramal, chairman, Piramal Enterprises.
Around six-eight investments will be made from the corpus in Mumbai, Bengaluru, Pune, Chennai and Delhi-National Capital Region (NCR).
Khushru Jijina, managing director, Piramal Finance Pvt. Ltd, said the timing of the equity platform is just right with top developers in the country looking at growth and new opportunities.
“We believe that the timing is opportune for the provision of both pure and preferred equity capital at an early stage in the project life cycle. Such equity funding with Tier 1 development partners will enable us to deploy capital over a longer time horizon and facilitate participation in larger projects with the ability to generate returns across real estate cycles,” Jijina said.
The real estate sector has largely relied on debt and structured debt financing over the last four years, owing to a slowdown and need for money for a variety of reasons, including refinancing existing loans.
However, the demand for equity remains strong, particularly by top grade developers who are looking to buy or develop land and need early-stage growth capital.
Michael Sabia, president and chief executive officer, CDPQ, said, “India represents a key market for our global growth. We look forward to a long-term and fruitful business relationship with Piramal in the years to come.”
Piramal has stitched up other joint ventures in the past, for real estate, and sectors such as infrastructure.
On the real estate side, Piramal Fund launched a $500 million platform with Canadian Pension Plan Investment Board (CPPIB) in February 2014 to provide debt financing to residential real estate firms. The venture has completed only one transaction so far, investing Rs110 crore in a Gurgaon-based project of Advance India Projects Ltd.
Piramal’s real estate book, which includes both debt and private equity funds, deployed as well as sanctioned loans that have not been disbursed, was at around Rs35,000 crore as on 31 December 2016.
A joint venture or a platform between a global investor and an Indian fund manager is more of an in-principle agreement or commitment of capital allocation, analysts said.
“This is long-term patient capital where the global partners relies on the Indian fund manager to source deals, filter them and do asset management at a later stage. An alliance like this sends out positive signals in the market that global firms are committing capital to real estate,” said Shashank Jain, partner-transaction services at PwC India, a consulting firm.
“Eventually, more deals will be stitched between preferred partners. But though a lot of capital has been committed, we haven’t seen large-scale deployment through this route, but there is also no rush to deploy money through such joint ventures,” Jain said.