Apollo Global Management Eyes L&T Finance’s Home Loan Portfolio With $1 Billion Deal

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

The deal, set at $1 billion, will also help L&T get cash up front instead of installment payments, which will allow it to deleverage its balance sheet, while the private equity group also gets a portfolio of real estate assets with first loss protection. like building a relationship with the engineering giant.

The transaction is expected to be finalized in a few weeks and will be carried out through a new alternative investment fund (AIF) structure and will be similar to Apollo’s agreement with Piramal Capital & Housing Finance, which is part of

said the people quoted above.

L&T Finance’s listed real estate portfolio decreased to ₹11,210 crore in FY22 from 12,945 crore in the prior year. Parent company L&T owns 66.26% of the financial services branch.

Under this plan, outstanding debt on L&T Finance’s real estate portfolio will be refinanced either through bonds or non-convertible debentures (NCDs) and transferred to the AIF which will be owned by both Apollo Global and L&T Group. These loans have an average yield of 15-16% in rupees. Shardul Amarchand Mangaldas and Trilegal are the legal advisors.

“As we disclosed to the investment 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 limit our exposure to the wholesale finance industry in general and the real estate finance industry in particular,” an L&T Finance spokesperson told ET. here FY25-26 with expected retail lending growth of nearly 25% CAGR with the help of large-scale fintech in which we have invested heavily in the past few years. ”

However, the spokesperson declined to comment on specifics regarding Apollo’s negotiations with the company for its home loan portfolio.

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

Apollo Global did not respond to emails sent on Saturday.

Switch to retail

L&T Finance Managing Director and Managing Director Dinanath Dubhashi recently told reporters that the company was exploring “inorganic structures” to exit the real estate project lending business or at least reduce its exposure to the segment by partnering with other financiers as the risk-reward profile is “unfavourable” despite some improvements, such as rising 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 its debt in the segment.

“The reliance of the real estate industry now on so many things including various permissions, progress of projects, it’s 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 almost 3,200 crore and are exploring various inorganic options, inorganic structures to accelerate this reduction.”

L&T chairman AM Naik reportedly said L&T Finance is the only listed company in the group that “didn’t perform”. L&T Managing Director and CEO SN Subrahmanyan was appointed non-executive chairman of L&T Finance in February to “transform itself into a technology-driven NBFC with retail at its heart”. This was in line with the group’s Vision 2026 master plan.

“Management outlined its Lakshya 2026 objectives, including retail growth to over 80% of balance sheet, plans to drive retail growth >25% CAGR, improved asset quality,” said Sharekhan analysts said in a note. “Management also intends to reduce its overall wholesale portfolio through the sale/transfer of assets with ties to other financiers.”

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

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