Piramal Enterprises to adjust ₹3,164 cr AIF exposure to comply with RBI order

After the RBI's tightening of rules governing alternate investment funds (AIFs), Piramal Enterprises Ltd (PEL) on Thursday said it will keep aside funds to cover its exposure to such funds.

"As of November 30, 2023, the value of investments by PEL and Piramal Capital & Housing Finance Limited in AIF units was Rs. 3,817 crores," Piramal Enterprises says via an exchange filing.

Of this, says the company, ₹653 crore pertains to funds with no exposure to any debtor companies of Piramal Enterprises. Of the remaining ₹3,164 crore, ₹1,737 crore worth of downstream investments have been made by the AIF into 3 entities that are (or were in the last 12 months) debtor companies of Piramal Enterprises.

"Taking a conservative view of the regulatory intent, PEL intends to adjust the entire ₹3,164 crores in our financial statements through capital funds or provisions. We are engaging with relevant stakeholders to finalise the details," says Piramal.

The company has a consolidated net worth of ₹28,710 crore (September end 2023), and a capital adequacy of 31%. "We remain confident of full recovery of the underlying downstream investments in the impacted AIF units. PEL (consolidated) has received Rs 905 crore so far as repayment of interest and principal on these units. Receivables on this fund accrue to PEL commensurate with our investment holding."

Amid the development, shares of the non-banking financial company (NBFC) closed 0.33% down at ₹882.10 on the BSE, taking its m-cap to ₹21,052.52 crore.

To address concerns relating to evergreening, the RBI this week directed all regulated entities, including banks and non-banking financial companies, to stop making investments in alternate investment funds (AIFs), which have downstream investments in existing and recent borrowers.

The banking regulator directed lenders to liquidate their investments in AIFs in 30 days if an AIF scheme, in which RE is already an investor, makes a downstream investment in any such debtor company.

Regulated entities make investments in units of AIFs as part of their regular investment operations. “However, certain transactions of REs involving AIFs that raise regulatory concerns have come to our notice. These transactions entail substitution of direct loan exposure of REs to borrowers, with indirect exposure through investments in units of AIFs,” the RBI says.

The RBi said if regulated entities had already invested into such schemes having downstream investment in their debtor companies as of date, the 30-day period for liquidation would be counted from the date of issuance of the circular.

Piramal Enterprises' net profit, excluding exceptionals and one-offs, stood at ₹113 crore in the July-September 2023 quarter, while its retail assets under management grew 55% YoY to ₹38,604 crore. Consolidated GNPA ratio dipped 10 bps to 2.7% in Q2, while the NNPA ratio remained flat at 1.5%. It had also completed a share buyback of ₹1,750 crore in Q2.