Apollo Global Management is in advanced talks with L&T Finance Holdings Ltd to buy real estate debts worth Rs 8,000-9,000 crore. The L&T Group is trying to shift its focus to the retail sector by reducing its infrastructure and real estate exposure.
The $1 billion deal will allow L&T to get cash up front rather than in instalments, allowing it to deleverage its balance sheet. Meanwhile, the private equity firm will get a portfolio of real estate assets with some first-loss protection and the opportunity to build a relationship with the engineering giant. According to the media sources, the sale will be completed in a few weeks and would be carried out under a freshly formed alternative investment fund (AIF) structure, similar to Apollo's agreement with Piramal Capital & Housing Finance, which is part of Piramal Enterprises. L&T Finance's real estate book decreased to Rs 11,210 crore in the fiscal year (FY) 2022 from Rs 12,945 crore the previous FY. The financial services branch is owned by L&T, which controls 66.26% of the company. The debt on the L&T Finance real estate book would be refinanced using bonds or non-convertible debentures (NCDs) and moved to the AIF, which would be jointly held by Apollo Global and L&T Group. The average rupee return on these loans is 15-16%. Trilegal and Shardul Amarchand Mangaldas were the legal advisors. An L&T Finance official told the media that L&T Finance has already embarked on the chosen strategy of becoming a retail finance company, and in that direction, they would be limiting their exposure to wholesale finance in general and real estate finance in particular. By FY 2025-26, they plan to have retailised their loan book to the extent of over 80%, with predicted retail loan growth of nearly 25% CAGR because of fintech at scale, in which they have invested heavily in recent years. Dinanath Dubhashi, L&T Finance managing director and chief executive, revealed that the company is exploring inorganic structures to exit the real estate projects lending business or at least reduce its exposure to the segment by partnering with other financiers. He also said that the firm is trying to join specialised funds to develop a platform that would commit cash to infrastructure initiatives. He added that it would help the company's debt reduction efforts in the division. According to analysts, management has outlined its Lakshya 2026 objectives, which include expanding retail to more than 80% of the balance sheet, plans to create >25% CAGR retail growth, and improved asset quality. Image Source
