L&T Finance to divest real estate, infrastructure books to reduce leverage

The real estate book of L&T Finance is worth Rs 11,210 crore and infrastructure finance is worth 30,521 crore as on March this year

L&T Finance Holdings, a subsidiary of construction major L&T, is planning to divest its real estate and infrastructure books in order to pare debt and focus on retail customers.

The financial services company is in talks with several banks, including State Bank of India (SBI), to divest a part of its books.

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The real estate book of L&T Finance shrank to Rs 11,210 crore while the infrastructure finance book fell to Rs 30,521 crore as on March 2022. The realty finance book was Rs 12,945 crore and infrastructure finance book was Rs 37,543 crore during the financial year ending March 2021.

“L&T Finance will wind down the real estate book over time. In the March quarter, real estate book was down by 13 per cent while infrastructure finance book fell 19 per cent year-on-year (YoY). But the retail loan book grew, thus showing the growth trajectory,” said a banker.

Sale of the books will also help parent L&T to show lower debt on a consolidated level. It was Rs 1.27 trillion as on September last year, a source said.

L&T Finance has signed an agreement to sell its mutual funds business to HSBC Asset Management (India).

L&T Finance confirmed on Monday that its real estate is being brought down and it will explore exit through various inorganic structures.

As for infrastructure finance book, the company continue with asset-light model and explore divestment/ tie-up with strategic investor.

With focus on retail, it is looking to grow this book at 25 per cent compound annual growth rate (CAGR) till 2026.

At this rate, loan book could be around Rs 1 trillion by 2026, said Dinanath Dubhashi, managing director (MD) & chief executive officer (CEO) of L&T Finance Holdings.

L&T Finance Holdings shares closed at 3.31 per cent at Rs 84.65 on Monday — giving it a total valuation of Rs 20,942 crore.

Another source said banks are reluctant to finance the wholesale lending books of non-banking financial companies (NBFCs) due to the rising bad debt in the sector.

Similarly, in real estate finance too, developers are facing acute problems in paying their dues. This is leading to defaults and higher bad debts for NBFCs.

L&T Finance is not the only company to focus on retail customers to grow its business. Most NBFCs are reducing exposure to wholesale businesses and are focusing on retail loans where bad debts are lower. L&T Finance’s retail book grew 10 per cent (YoY) to Rs 45,000 crore as on March 2022.

Apart from the financial services arm, L&T is also selling three large assets in the current financial year. They are Nabha Power, L&T Infrastructure Development Projects (IDPL) and Hyderabad Metro. “Of this, IDPL sale is in its last stages,” the source said.

IDPL is one of the largest road developers in the country with 7,182 lane km of roads across 15 operational projects in India.

L&T holds 66.26 per cent stake worth Rs 13,870 crore in its financial services arm.