CDPQ arm Ivanhoé Cambridge partners Piramal, commits $250 million

Bengaluru: Piramal Enterprises Ltd has entered into a strategic partnership with Ivanhoé Cambridge, a real estate subsidiary of Caisse de dépôt et placement du Québec (CDPQ), Canada’s second largest pension fund, to provide long-term equity capital to top residential developers across five Indian cities.

Around 6-8 investments will be made by the partners in Mumbai, Bengaluru, Pune, Chennai and the National Capital Region (NCR) centred around Delhi.

Ivanhoé Cambridge will allocate an initial $250 million and Piramal will co-invest between 25% and 50% of what the former puts into each transaction. The total investment is set to scale up to $340 million between the partners.

The capital, which will be in the form of pure and structured equity, will be deployed in about three years’ time with a 7-10 year investment horizon. Like in most other so-called platform arrangements, this will also see co-investments in each transaction by Ivanhoe, Piramal and the concerned developer.

“Given the scale of our existing real estate offering and roster of existing developer relationships, the partnership will enable us to execute on very compelling opportunities to deliver high-quality residential developments in the local markets that we service,” said Ajay Piramal, chairman, Piramal Enterprises.

Khushru Jijina, managing director, Piramal Finance Pvt. Ltd, which houses the entire financial services business of the Piramal Group, said the equity platform was timed right with top developers in the country looking at growth and new opportunities.

“We believe that the timing is opportune for the provision of both pure and preferred equity capital at an early stage in the project life cycle. Such equity funding with Tier 1 development partners will enable us to deploy capital over a longer time horizon and facilitate participation in larger projects with the ability to generate returns across real estate cycles,” Jijina added.

The real estate sector has largely relied on debt and structured debt financing over the last four years, owing to a slowdown and need for money for a variety of reasons, including refinancing existing loans.

However, the demand for equity remains strong, particularly among top-grade developers who are looking to buy or develop land and need early-stage growth capital.

Michael Sabia, president and chief executive officer, CDPQ, said, “India represents a key market for our global growth. We look forward to a long-term and fruitful business relationship with Piramal in the years to come.”

Piramal has stitched together other joint ventures in the past for real estate and infrastructure sectors.

On the real estate side, Piramal Fund launched a $500 million platform with Canadian Pension Plan Investment Board in February 2014 to provide debt financing to residential real estate firms. The venture has completed only one transaction so far, investing Rs110 crore in a Gurgaon-based project of Advance India Projects Ltd.

Piramal’s real estate book, which includes both debt and private equity funds—deployed as well as sanctioned loans that have not been disbursed—was at around Rs35,000 crore as on 31 December 2016.

“This is long-term patient capital where the global partner relies on the Indian fund manager to source deals, filter them and do asset management at a later stage. An alliance like this sends out positive signals in the market that global firms are committing capital to real estate,” said Shashank Jain, partner, transaction services, at PwC India, a consulting firm.

“Eventually, more deals will be stitched between preferred partners. But though a lot of capital has been committed, we haven’t seen large-scale deployment through this route, but there is also no rush to deploy money through such joint ventures,” Jain added.

In the last few years, a number of partnerships between foreign investors and Indian developers have happened in the real estate sector.

In the residential business alone, Macquarie Infrastructure and Real Assets (MIRA), a part of Australia’s Macquarie Group Ltd, and realty firm Tata Housing Development Co. Ltd formed a Rs2,000 crore platform to develop high-end residential projects in 2016. Earlier in the year, Godrej Properties Ltd raised $275 million for Godrej Residential Investment Program II (GRIP-II), to invest in residential projects, from a clutch of investors, with Dutch pension fund asset manager APG Asset Management as the lead investor.

Back in 2014, sovereign wealth fund Government of Singapore Investment Corp. Pte Ltd entered into a Rs1,500 crore joint venture agreement with Brigade Enterprises Ltd to invest in projects in south India.