Piramal Enterprises and Canada Pension Plan Investment Board (CPPIB) have jointly set up a $500-million fund to finance residential property projects in India.

The partnership will invest equally in the venture to focus on providing project-level debt to local developers for residential developments in Mumbai, Delhi NCR, Bangalore, Pune and Chennai — markets with good civic infrastructure, strong employment and population growth forecast which provide favourable absorption dynamics for middle income housing, the company said.

The partners have already identified projects for lending under the deal, and an announcement will be made by March, Khushru Jijina, Managing Director of Piramal Indiareit, told reporters. “The average interest rate for lending under the alliance is expected to be 20 per cent,” he said.

Ajay Piramal, Chairman, Piramal Enterprises, said, “The requirement for debt has gone up because banks are not allowed to fund real estate and the IPO market is virtually dead.” This is pushing India’s real estate developers to find other modes of financing.

According to Piramal, “This is an opportune time to be creating an aligned pool of capital to target what we believe to be very compelling financing opportunities in the real estate sector. It (partnership) is one of the largest single cheques to be put into the sector.”

Last year, CPPIB made its first foray into India’s property market investing $200 million in a real estate joint venture with India’s Shapoorji Pallonji Group.

The diversified Piramal group launched its financial arm in 2011 with a focus on the real estate sector and already operates a real estate-focused private equity arm, which manages about ₹4,300 crore across several funds. Piramal Enterprises is flush with funds following sales of its domestic formulations business for ₹17,000 crore to Abbott, and diagnostics business for over ₹600 crore to Super Religare Laboratories — both in 2010.

Among other investments, the Group picked up 11 per cent equity in Vodafone India, in two tranches (2011 and 2012), for close to ₹5,900 crore. Recently, the Government approved Vodafone’s proposal to increase its stake in its Indian arm to 100 per cent. In the process, the British telecom major is set to buy out its minority shareholders, and reports say that about ₹8,900 crore would flow into the Piramal kitty, as a result.

Without getting into the details, Piramal indicated that the funds could come in the first quarter of next year.

In the next three to four months, Piramal Enterprises is also likely to buy a 20 per cent stake in Shriram Capital, the NBFC which has applied for a bank licence, GS Sundararajan, Managing Director, Shriram City Union Finance, had told Business Line in early January. Piramal, however, declined to comment.

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