Exclusive: APG, Piramal launch $1bn India platform

Mumbai-based diversified company Piramal Enterprises and Dutch pension fund asset manager APG have committed $750m to the platform.

Piramal Enterprises Limited (PEL), one of India’s largest diversified companies, and APG Asset Management, the Dutch pension fund asset management firm, have announced a strategic alliance for investing in rupee-denominated mezzanine instruments issued by infrastructure companies in India with a target investment of $1 billion over the next three years.

PEL and APG have each initially committed $375 million to the venture which represents one of the largest private sector commitments to the infrastructure sector in India. Macquarie Capital acted as sole financial advisor on the transaction.

The fund will focus on operational and near-completion projects with limited execution risks and high visibility of cash flows coming from a portfolio of projects.

“Access to this source of 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,” said Dick Sluimers, APG’s chief executive officer.

The investment fund comes hot on the heels of business-friendly Narendra Modi and his Bharata Janata party (BJP) winning a majority of seats in India’s national elections in June.

“In its election manifesto, BJP promised to introduce measures to support infrastructure, urbanization and manufacturing to help revive the investment cycle. The political power change is expected to give a significant push to India’s economic growth, which benefits capital intensive sectors such as infrastructure,” said Jayesh Desai, co-head of the Structured Investment Group (SIG) at PEL.

“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,” added Hans-Martin Aerts, head of infrastructure Asia, APG.

Factors such as regulatory restrictions on bank lending and a nascent corporate bond market with valuation mismatches (which are deterring promoters as they fear dilution of shares) have determined the partnership’s choice of mezzanine capital for their investment strategy.

“[…]Mezzanine capital satisfies a market need by providing long term stable capital while also providing the risk-return profile and high cash flow visibility,” Aerts added.

PEL and APG expect an 18 percent return plus the return from an equity kicker, depending upon the risk profile of each investment.

Further investment into the platform may come from Indian insurers and pension funds which are restricted under current regulations from making substantial direct investments into infrastructure projects.

“Led by government efforts to improve the regulatory and policy framework for the infrastructure sector, we are seeing increasing interest from global institutional investors to look at investing in the infrastructure sector in India. Most of this interest is seeking exposure to brownfield or operating assets as global investors are still wary of greenfield risk in India,” said Desai.

PEL has a presence in pharmaceuticals, healthcare information management and financial services. PEL’s consolidated revenues were $750 million in full-year (FY) 2014. In the financial services space, PEL, through Piramal Fund Management, provides comprehensive financing solutions to real estate companies. Its Structured Investments Group invests in various sectors, including infrastructure.

APG Asset Management is a Dutch pension fund asset manager in the Netherlands. For its pension fund clients and their 4.5 million active and retired participants from the public and private sectors, representing over 30 percent  of all collective pension schemes in the Netherlands, APG Asset Management managed pension assets of €375 billion as at the end of June 2014.