MUMBAI: Ajay Piramal, billionaire owner of drugs-to-financial services Piramal Enterprises, will become the promoter with 35% stake in the company to be created by the merger of his financial services business with infrastructure firm IL&FS. The all-stock deal, which will create a company with revenues of $2.5 billion, or about Rs 15,000 crore, will be owned 37% by existing institutional shareholders of IL&FS while retail and other foreign investors of Piramal Enterprises Ltd (PEL) will own 28%. ET was the first to report the proposed merger on September 10. The shareholding structure was recently thrashed out by the management, shareholders and legal representatives of the two firms ahead of the PEL board meeting to approve the transaction, two people with direct knowledge of the deal said. The Piramal Enterprises board will take up the matter for discussion in a couple of weeks. “Both foreign and local shareholders of IL&FS have approved a merger plan and PEL board will take up the proposal in a few weeks,” a person close to the development said. “We do not comment on market speculation,” a Piramal spokesperson said in an email while Ramesh Bawa, IL&FS managing director and chief executive officer did not respond to an emailed questionnaire. A combination of IL&FS and the PEL unit will create a financial services conglomerate with a networth of Rs 14,500 crore and debt of Rs 65,000 crore. Its presence will span infrastructure finance, corporate lending and a private equity fund with assets under management of $3 billion. The firm will also have 10 power firms, including a 600 MW power plant in Cuddalore, near Chennai, India’s largest wind energy assets of 1000 MW, 30 functional toll road projects and engineering & consultancy firm Maytas Infrastructure. “IL&FS needs more capital infusion to execute and finance more projects and Piramal can infuse the necessary capital,” the first person said. Local lenders are constrained by financial regulations to invest more, while foreign investors stay away from investing large sum in a single company. IL&FS is owned by SBI, the country’s largest bank by assets; HDFC, India’s largest mortgage lender; and Life Insurance Corporation, India’s largest insurer. Other shareholders include Central Bank of India, Orix Corporation of Japan and Abu Dhabi Investment Authority (AIDA). The local lenders are planning to exit from non-core businesses to shore up capital while LIC cannot invest more than 25% in the equity capital of any company. They did not participate in IL&FS’ last rights issue of Rs 238 crore while foreign investors purchased some of the unsold shares in the issue. Piramal, a management graduate from Jamnalal Bajaj Institute of Management Studies, his doctor wife Swati, son Anand and daughter Nandini, now own 53% stake in PEL, which earned 18% of its Rs 5,123-crore revenue in the 2014-15 fiscal year from financial services. The higher networth will help IL&FS to raise roughly Rs 50,000 crore and will enable it to both invest and lend to power, ports, roads and railways infrastructure developers who are short of capital. CHALLENGE FOR PIRAMAL Consultants say the challenge for Piramal is to develop the capability to manage an infrastructure financing business. “The challenge for Piramal is that IL&FS is an infra financing and operating business… Piramal has not done that yet,” says Abizer Diwanji, Partner & National Leader-Financial Services, EY. “That capability is important…there would also be legacy issues with some assets.” There could be people issues too due to difference in culture of a pharma company and an Infra company,” he added. The minority shareholder of the merged entity will be IL&FS Employees Trust, created for the welfare of employees, who now own 13.4%. Piramal has been investing in non-promoter-driven financial services after he sold his money spinning drug formulation business to Abbott Laboratories for Rs 17,484 crore in 2010. In 2013 and 2014, Piramal, 60, who regularly attends spiritual classes, invested Rs 4,583 crore in the Chennai-based financial conglomerate Shriram group for a minority stake. Piramal and his family, who has built a cordial relationship with Shriram group founder R Thyagarajan, bought 20% stake in Shriram group’s holding company, first for Rs 2,146 crore and followed it up with a purchase of 10% in Shriram Transport Finance Company for Rs 1,636 crore and 10% stake in Shriram City Union Finance, largest consumer finance company in South India.