Piramal in $1B alliance with Dutch pension fund APG to finance infrastructure cos

Diversified cash rich firm Piramal Enterprises Ltd (PEL) has formed an alliance with Dutch pension fund asset manager APG Asset Management for investing in rupee denominated mezzanine instruments issued by Indian infrastructure companies with a target investment of $1 billion over the next three years, as per a company statement.

PEL and APG have each initially committed $375 million for investments under this strategic alliance.

"This is an opportune time to be creating an aligned pool of capital to target what we believe to be very compelling funding opportunities in the infrastructure sector in India. This is the single-largest investment of APG in the unlisted space in India to date and underlines the confidence reposed by institutional investors in Piramal Group’s capabilities," said Ajay Piramal, chairman of Piramal Enterprise.

"The strategy of the alliance to focus on mezzanine investments in infrastructure projects in India ticks the right boxes for our pension fund clients in terms of risk-return profile and high cash flow visibility," said Dick Sluimers, CEO of APG.

This pool of capital will focus on operational and near completion projects with limited execution risks and high visibility of cash flows coming from a portfolio of projects. The capital will enable infrastructure players in India to retain their equity interest in the assets, while raising long-term capital to help them complete their on-going infrastructure projects and enhance shareholder value.

Macquarie Capital acted as the sole financial advisor for the transaction.

Jayesh Desai, co-Head of Structured Investment Group (SIG), PEL said that Indian infrastructure players have moved up in maturity scale as the portfolio of operational projects has increased and hence, is lending high visibility to future cash flows.

He estimated that over $150 billion of equity and mezzanine funding is required to meet government target investment of $1 trillion until 2017, and this is the gap the latest strategic alliance seeks to bridge.

“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. 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,” he added.

Hans-Martin Aerts, head of infrastructure for Asia, APG, said that the current market circumstances where there is a mismatch between demand and supply of capital creates a window of opportunity to make mezzanine investments in Indian infrastructure. “We believe that the infrastructure sector in India is at an inflection point,” he added.

APG manages pension assets of 4.5 million active and retired individuals from both private and public sectors, totaling about €375 billion (as of June 30, 2014).

This is the third such platform investment created by APG in India in the last two years. In 2012 it had struck a similar partnership with Godrej Properties where a group of foreign investors, led by APG and also including asset management firm Sparinvest Property Investors, committed Rs 770 crore ($138 million then) for a majority owned residential property development platform with Godrej Properties.

In May this year, APG had announced a $300 million venture with Xander to buy office properties in India.

Such platform partnerships are gaining ground in Indian realty space. Besides APG, Canadian pension fund manager Canada Pension Plan Investment Board (CPPIB) also has struck two such deals, one each for residential properties and office buildings.

One of these deals involves PEL. CPPIB, through a separate arm CPPIB Credit Investments, joined hands with PEL to offer rupee debt financing to residential projects in major urban centres in India. The two partners have committed an initial investment of $250 million each for the same. Indiareit Fund Advisors, the real estate fund management arm of Ajay Piramal-led Piramal Enterprises, has been appointed as advisor for the alliance.

(Edited by Joby Puthuparampil Johnson)

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