Canadian pension fund's stake in Piramal Enterprises may rise up to 9%

Piramal Enterprises’ (PEL’s) Rs 5,400 crore of new fundraising, including a rights issue and a preferential convertible debenture issue to Caisse de Depot et Placement du Quebec (CDPQ) will help Canada’s biggest pension fund to raise stake to around 9 per cent from 2.22 per cent as of September.

The board of directors at the Ajay Piramal-owned conglomerate cleared the rights and preferential issues to CDPQ on Friday. As a result of the proposed equity dilution, the company’s shares fell — wiping out Rs 2,651 crore of market value in one day.

“With existing shareholding, they (CDPQ) will hold about 9 per cent stake in Piramal. CDPQ does not want any seat on the board and believes that governance in the company is high. They have not asked for any rights,” said Ajay Piramal, chairman. 

A large portion (68 per cent or Rs 3,650 crore) of the planned funding would be via the rights issue and the rest (Rs 1,750 crore) through preferential allotment of compulsory convertible debentures (CCDs) to CDPQ, goes Piramal’s exchange filing.

CDPQ had participated in Piramal’s fundraising about two years earlier; it had also bought stake from the open market. The preferential allotment will take place on November 25 and the rights issue is expected to be done by February 2020, the company said. The CCDs will be converted after 18 months.

After the announcement, Piramal’s share price fell 17 per cent. The rights issue is priced at Rs 1,300 each or 18 per cent below Piramal’s Friday closing share price of Rs 1,590.4. Notably, the price of the issue is a little below the 52-week low of the stock. Since January this year, the stock has lost 33.3 per cent of its value.

The fundraising announcement was a result of a liquidity challenge faced by non-banking financial companies.  This and real estate stress, among others, had weighed on the growth of Piramal’s financial services business in 2018-19. The share of stressed loans rose to 1.9 per cent that year, from 0.9 per cent in FY18, reported Motilal Oswal analysts on Piramal’s FY19 report.

The financial services business accounted for 56 per cent of Piramal’s overall revenue during April-September (first six months of the financial year) 2019. Pharmaceuticals had 35 per cent revenue share.

The company has said it does not have any debt exposure to stressed real estate developers such as Aristo, Nahar, Supertech, Amrapali, etc. However, the Street is sceptical of debt repayment by the Lodha group, says an analyst with a domestic brokerge.  

Piramal has exposure of Rs 3,100 crore to the Lodha-owned real estate company. This has eroded the former’s market capitalisation by about 10 per cent or Rs 3,454 crore over the past year.