OMERS Infrastructure Management, Inc. has acquired a 22.4% interest in the infrastructure investment trust (InvIT) of L&T Infrastructure Development Projects Ltd (L&T IDPL) for Rs 870 crore ($122 million).
The infrastructure investment vehicle under one of Canada’s largest pension funds said on Friday the bet on IndInfravit Trust is its first investment in India’s infrastructure sector. The deal follows a similar significant investment made by its peer Canada Pension Plan Investment Board (CPPIB) last May.
CPPIB had bought 30% of IndInfravit Trust’s units for nearly $152 million (Rs 1,014 crore then) via a private placement. Allianz Capital Partners, the in-house alternative investment firm of Munich-headquartered financial services firm Allianz, had acquired 25% of the units for an estimated $128 million. The total size of the private placement was $510 million, which saw participation from other local and international institutional investors.
In fact, CPPIB had first invested Rs 1,000 crore ($157 million then) in L&T IDPL, a subsidiary of engineering and construction conglomerate Larsen & Toubro, in December 2014. It was the first direct private investment by a Canadian pension fund into an Indian infrastructure development company. A year later, the L&T arm received its second tranche of investment from CPPIB.
OMERS Infrastructure’s executive Vice President and global head Ralph Berg said in a statement the deal provides the firm an opportunity to deepen its relationships with CPPIB, Allianz and L&T.
“The investment in IndInfravit marks not only our first infrastructure investment in India, but also demonstrates our commitment to investing in the Asia Pacific region. Our investment aligns with our strategy to diversify our portfolio,” said Berg.
Mumbai-based financial services firm Ambit Pvt. Ltd advised OMERS Infrastructure on the deal.
The firm invests in infrastructure assets across the world on behalf of its parent. The investments are aimed at generating steady returns to help deliver secure and sustainable pensions to OMERS members.
OMERS Infrastructure’s diversified portfolio includes large-scale assets in sectors including energy, transportation and government-regulated services. OMERS, founded in 1962, has 95 billion Canadian dollars in net assets.
The pension fund has been scouting for opportunities to invest in India’s infrastructure space. It was in talks with the cash-strapped Infrastructure Leasing and Financial Services (IL&FS) to acquire its road projects, which also saw interest from private equity giant KKR, according to various media reports.
IL&FS Transportation Networks Ltd, a listed unit of IL&FS, has 28 road projects under the build-operate-transfer model. Of these, 21 are operational and the remaining under construction. IL&FS group's total debt stands around Rs 91,000 crore.
OMERS also invests through its multi-stage growth-oriented venture capital investment arm OMERS Ventures. The VC firm invests in technology, media and telecommunications companies worldwide.
IndInfravit Trust is sponsored and managed by L&T IDPL. The trust develops infrastructure projects with a focus on the road and electricity transmission sectors. Its units listed on the stock exchanges last May. L&T is India’s largest engineering and construction company.
The IndInfravit holds a portfolio of five operational toll road concessions which were initially constructed and operated by L&T IDPL and then transferred to the trust for about Rs 909.08 crore before the private placement.
IDPL has 17 infrastructure projects, of which 15 are operational and two are under construction. It has 33 toll plazas across India and will build additional five collections points within three years.
The InvIT issue was the third overall after regulations for the investment vehicles came into place roughly four years ago.
IRB Infrastructure Developers Ltd was the first company to launch a public InvIT in May 2017. While its IPO attracted strong interest from investors, its stock market debut was lackluster, with its units falling below the IPO price.
Sterlite Power Venture’s offering, the India Grid Trust, was worse as its IPO struggled to garner full subscription. Its units dropped in value on listing day.
This damped investor sentiment at a time when at least five other infrastructure companies were seeking to float IPOs of InvITs. Billionaire Gautam Adani-controlled Adani Group later called off plans to float an InvIT for the power transmission arm, anticipating few takers.
The Securities and Exchange Board of India (SEBI) has made multiple amendments to regulations governing InvITs and real estate investment trusts to make them attractive for investors.
The capital markets regulator last year allowed strategic investors such as international multilateral financial institutions and non-banking financial companies to invest up to 25% of the total offer size. In 2017, it permitted such trusts to raise funds by issuing debt securities.