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Apollo Global Management eyes L&T Finance realty loan book with $1 billion deal

Apollo Global Management is in advanced talks with L&T Finance Holdings Ltd to acquire real estate loans worth ₹8,000-9,000 crore, said people with knowledge of the matter. The L&T Group company is looking to pivot toward the retail segment by pruning its infrastructure and real estate exposure, they said.

The deal, pegged at $1 billion, will also will help L&T get cash upfront instead of through staggered payments, allowing it to deleverage its balance sheet, while the private equity group gets a portfolio of real estate assets with some first-loss protection as well as building a relationship with the engineering giant.

The transaction is expected to get finalised in a few weeks and will be carried out via a newly floated alternative investment fund (AIF) structure and will be similar to Apollo’s deal with Piramal Capital & Housing Finance, part of

, said the people cited above.

The real estate book of listed L&T Finance shrank to ₹11,210 crore in FY22 from 12,945 crore in the previous fiscal year. Parent L&T owns 66.26% of the financial services arm.

Under the plan, the debt outstanding on the L&T Finance real estate book will be refinanced either through bonds or non-convertible debentures (NCDs) and move to the AIF that will be owned by both Apollo Global and L&T Group. These loans have a 15-16% rupee return on average. Shardul Amarchand Mangaldas and Trilegal are the legal advisors.

“As we have disclosed to the investor community, press and on our website, L&T Finance has already embarked on the chosen strategy of becoming a retail finance company and in that direction, we would be limiting our exposure to the wholesale finance business in general and to the real estate finance business in particular,” an L&T Finance spokesperson told ET. “We would be targeting retailisation of our loan book to the extent of around 80% by FY 25-26 with expected retail loan growth of almost 25% CAGR with an aid of fintech at scale wherein we have invested hugely over the past few years.”

However, the spokesperson declined to comment on details regarding Apollo negotiating with the company for its real estate loan book.

“As regards specific methods of pruning the real estate book, we would not like to comment upon market speculation,” the person said.

Apollo Global didn’t respond to emails sent on Saturday.

Pivot to Retail

L&T Finance managing director and chief executive Dinanath Dubhashi told reporters recently 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 as the risk-return profile is “not favourable” despite some improvements, such as higher apartment sales. The company is also looking to join dedicated funds to create a platform that will commit funds to infrastructure projects, he said. This will help the company reduce debt in the segment.

“The dependence of the real estate sector now on so many things including various permissions, progress of projects, it is becoming more and more difficult to be predictable and with that we have decided to… complete our existing projects,” Dubhashi had said. “We have actually reduced and collected a portfolio of close to 3,200 crore and are exploring various inorganic options, inorganic structures of accelerating this reduction.”

L&T chairperson AM Naik has been quoted as saying that L&T Finance is the only listed company in the group that “has not performed.” L&T’s MD and CEO SN Subrahmanyan was installed as the non-executive chairman of L&T Finance in February to “transition itself into a tech-enabled NBFC with retailisation at its core.” This was in line with the group’s Vision 2026 blueprint.

“Management has put forward its Lakshya 2026 goals, including growing retail to more than 80% of the balance sheet, plans to generate >25% CAGR retail growth, better asset quality,” Sharekhan’s analysts said in a note. “Management also intends to reduce its overall wholesale portfolio through sale/transfer of assets with tie-ups with other financiers.”

Since the Covid-19 pandemic, L&T’s real estate finance business has taken a more calibrated approach toward disbursements, mainly aimed at completion of ongoing projects and resolutions, the company said in its latest annual report. Continued support to developers in construction finance facilitated greater traction in project completion, which has resulted in 6% growth in escrow collection and 62% growth in repayments and prepayments from the year earlier, it said. Continued focus on completion of existing real estate projects resulted in repayments and prepayments of over ₹3,000 crore in FY22, it added.

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