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Published: Aug 29, 2019
Updated: Aug 29, 2019

Realty woes spark Piramal stock fall

The share price of Piramal Enterprises has charted a downward course and has lost over 50 per cent from its 52-week high level of Rs. 2,795. The fall was so drastic that Piramal had to complain to the market regulator, the Securities and Exchange Board of India (SEBI), against rumour mongers on social media.

And of course, the Piramal group has no problem in borrowing funds as its chief honcho Ajay Piramal has strong credentials to raise money from the market. The group has managed to get life insurance giant LIC on board with a credit line of Rs. 1,500 crore. In addition, Birla Sun Life, IndusInd Bank and International Finance Corporation have also put in money. There are also reports that Flipcart co-founder Sachin Bansal has infused Rs. 200 crore in Piramal Enterprises. It is also said that earlier this year, the company had taken a Rs. 1000-crore loan from Sikka Parts – an unlisted company of Mukesh Ambani.

But the real estate market is deep in trouble. The Piramals are reported to have a huge exposure to Lodha Developers which is facing a crippling slowdown. The latter’s key customers – high net worth individuals – are preferring to invest overseas as the Indian economy is facing a distinct slowdown. Analysts believe the slowdown may worsen if the government does not take imaginative and effective measures to stem the rot.

Meanwhile, there are reports that Piramal’s Rs. 2500 crore debt will be coming up for redemption in the next 15 months or so. This debt includes non convertible debentures issued to various institutional investors and also inter corporate deposits. There are bank loans that will also come up for redemption in the near future. The current liquidity crisis in nonbanking financial companies (NBFCs) has been creating a problem as the short-term money is not available in the market to pay back the loans, while the money deployed in the business is locked in various assets such as home loan and developer loans. IL&FS and DHFL are two examples where the entire business model has turned upside down.

Furthermore, Japanese multinational conglomerate Softbank was reported to be interested. But as the real estate market debacle hit the NBFC sector very hard, it started building up the pressure of asset-liability mismatches. Subsequently, it was reported that Softbank had decided not to invest in Piramal Enterprises. The investment was important for the company as it has to grow its business in India and repay old debt. But ever since the Softbank pull-out story, the Piramal stock has been falling sharply. One of the real estate funds of Piramal Enterprises revealed that it is extending the tenure of the fund as several investments have gone bust.

However, the group can still take solace from the fact that Mr. Piramal has strong credentials to raise funds and meet the current funds crunch.