Piramal, APG to invest $1 billion in infrastructure sector
The fund will focus on operational projects and those near completion with limited execution risks, say the firms
Mumbai: Ajay Piramal-controlled Piramal Enterprises Ltd and Dutch pension fund asset manager APG Asset Management NV together plan to invest $1 billion in mezzanine securities—hybrids of debt and equity financing—sold by Indian infrastructure firms over the next three years. Piramal Enterprises and APG have initially committed $375 million each for investments under a strategic alliance they announced on Wednesday.
The announcement marks one of the largest private sector pledges to the infrastructure sector in India and one of the single largest commitments to date by a foreign investor to help build public works such as power plants, roads and ports.
The strategic pool of capital will focus on operational and near-completion projects with limited execution risks and high-visibility of cash flows, the firms said in a joint press statement.
Access to this source of capital will enable infrastructure companies in India to retain their equity interest in the assets while raising long-term capital to help them complete under-construction infrastructure projects and enhance shareholder value, the statement said.
More than $150 billion of equity and mezzanine funding is needed to meet the government’s target of attracting $1 trillion of investment to infrastructure in the five years to 2017—the alliance seeks to bridge this gap, said Jayesh Desai, co-head of structured investment group (SIG) at Piramal Enterprises.
“Mezzanine investments for infrastructure sector in India offer a compelling investment proposition, as it addresses the void in the capital stack which currently exists in the market place," Desai said.
“This is due to the constraints of commercial banks in India to provide only senior secured lending at asset level where there is limited headroom, especially in cases where there has been delay in project execution."
The corpus of $1 billion will be deployed in assets such as roads, ports, power, telecom, education, and the hospitality sector, among others, Desai said in a telephone interview after making the announcement.
The fund is looking at three-four funding opportunities to invest in now and will finalize the deals in next three-six months. The minimum ticket size of an investment would be ₹ 300 crore or $50 million. On the higher side, it may go well beyond ₹ 900 crore or $150 million.
“We would ideally like to finance at a holding company level, which has multiple projects," Desai added. For APG, the second largest pension fund in the world, the investment is the largest in its Indian portfolio which includes SBI Infrastructure Fund and ILFS Infrastructure Debt Fund among others.
Given the government’s strong push to infrastructure sector revival through conducive policy regime, the funding from the alliance will aid infrastructure firms recycle capital and contribute significantly to the further development of public works, said Hans-Martin Aerts, head of infrastructure, Asia, at APG.
APG Asset Management has managed pension assets worth €375 billion as of June 2014.
Piramal Enterprises, one of India’s largest diversified firms, has a presence in pharmaceuticals, healthcare information management and financial services.
The strategic alliance comes when more than ₹ 6 trillion worth of projects in India have been stalled as of 31 March, according to the Centre for Monitoring Indian Economy Pvt. Ltd (CMIE), a Mumbai-based think tank.
At least ₹ 1.8 trillion of these were road projects stuck for lack of land and environmental clearances, according to Nitin Gadkari, Union minister for road transport and highways.
Half of all restructured loans in the Indian banking system (almost ₹ 1.2 trillion) were in sectors such as infrastructure including power, and iron and steel, as per data from the corporate debt restructuring (CDR) cell, Mint reported on 25 July.
Investment in infrastructure had fallen to just about 5% of India’s gross domestic product, half of what is needed if it is to return to near double-digit growth rates, estimates rating agency Crisil Ltd.
APG Asset is not the only pension fund investor that is looking at India. Canada Pension Plan Investment Board (CPPIB), the largest pension fund investor in the India’s infrastructure sector, plans to continue to expand its presence in the country.
The pension fund, the world’s seventh-largest by assets under management, has invested $1.1 billion (around ₹ 6,600 crore) across four transactions in the past six months, the highest by a pension fund in India.
CPPIB has tied up with construction firm Shapoorji Pallonji Group for investments in commercial real estate developments and with Piramal Enterprises for real estate financing venture.
CPPIB has also started to make inroads into the pure play infrastructure space.
On 23 June, India’s largest engineering and construction firm Larsen and Toubro Ltd (L&T) said CPPIB had agreed to invest 2,000 crore in its unlisted subsidiary, L&T Infrastructure Development Projects Ltd.
This is the first direct private investment by a Canadian pension fund in an Indian infrastructure development company.
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