Brookfield lines up largest-ever India deal with $1.9bn purchase of gas pipeline

Firm shows continued bullishness towards India market by acquiring loss-making asset that connects gas reserves off east coast with urban centres in west.

Brookfield Asset Management has completed its largest-ever transaction in India by acquiring a loss-making, 1,500-kilometre natural gas pipeline for $1.9 billion, thereby underscoring its bullish view of the country’s infrastructure market.

The Toronto-based asset manager has set up the India Infrastructure Trust, in which it holds a 90 percent stake, to acquire 100 percent of the East West Pipeline and its owner and operator, Pipeline Infrastructure Private Limited.

According to a final placement memorandum that India Infrastructure Trust filed with the Securities and Exchange Board of India, $7.2 million of the purchase price will go towards acquiring 100 percent equity in the pipeline. The balance will be used to refinance the asset’s debt, which totals $2.3 billion.

The seller, Reliance Industries, will maintain a stake in PIPL in the form of preference shares worth $580 million. These will be converted into equity at the end of 20 years.

The pipeline connects the natural gas reserves of the KG Basin, off India’s east coast, with fast-growing regions in the west of the country.

India Infrastructure Trust said in the memorandum: “We believe the pipeline acts as a vital link in India’s developing natural gas grid as it connects certain supply hubs and demand centres located in […] eastern and western India.”

The filing says that the asset is “well positioned for growth” thanks to its “ability to access future gas production from new exploration in the KG Basin” and its connections with other gas terminals.

“We believe that it also has potential connectivity to other major gas pipeline networks in India,” the trust said. It added that the share of natural gas in India’s energy mix was set to rise from 11 percent in 2010 to 20 percent by 2025.

Brookfield has also entered into a 20-year agreement with Mumbai-based conglomerate Reliance  Industries to reserve 33 mmscmd (million metric standard cubic metres per day) of the pipeline’s 56 mmscmd capacity. Reliance said it would also be entitled to “a significant participation in the net earnings of PIPL” under the terms of the agreement.

The average daily flow of natural gas through the pipeline stood at 17 mmscmd in 2017 and 2018, and at 19 mmscmd in 2016.

Brookfield and Reliance declined to comment or did not respond to requests for further comment.

The asset manager has ramped up its operations in India. In 2015, it partnered the Core Infrastructure India Fund to acquire nine projects with a total value of around $1 billion. Last year, it reportedly took part in the bidding process to operate eight toll roads tendered by the National Highway Authority of India, but lost out to Macquarie Infrastructure and Real Assets.

In 2016, Brookfield was in talks to buy Reliance Telecom’s tower business for as much as $1.6 billion, although the deal was ultimately scrapped. According to reports in the Indian media, both companies could be renegotiating the deal.