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PSP Investments in $530m Indian energy deal

The Canadian pension is making its first direct Indian infrastructure investment with the acquisition of Reliance Infrastructure's Mumbai power business.

Canada's Public Sector Pension Investment Board (PSP Investments) has signed a non-binding agreement to acquire a stake in Reliance Infrastructure's Mumbai power assets, in what is set to be the pension's first direct infrastructure investment in India. 

Reliance, India’s largest private power company, did not disclose the size of the deal, but local press sources have reported the Canadian fund will pay around INR35 billion (€497 million; $530 million) for the stake. The deal is expected to help Reliance cut its debt by INR115 billion, as INR80 billion of debt will be transferred to a special purpose vehicle (SPV).

The SPV, named Reliance Energy, will be 51 percent owned by Reliance, with PSP Investments holding the remaining 49 percent. 

The power generation, transmission and distribution assets to be owned by the vehicle supply power to nearly three million residential, industrial and commercial consumers in the suburbs of Mumbai, covering an area of 400 square kilometres. It caters to a peak demand of over 1,800 megawatts, with revenue of INR77 billion in 2014-2015. 

The proposed transaction is still subject to due diligence and regulatory approvals. “Accordingly, there can be no certainty that a transaction will result,” Reliance said in a statement. 

While the deal is set to be PSP Investment's first direct Indian infrastructure investment, the C$112 billion pension is not peerless in the country. 

The Canada Pension Plan Investment Board invested around $2 billion in India in the past five years and opened its first office in Mumbai last month. Other Canadian pension funds including Caisse de dépôt et placement du Québec are also looking to invest in the Indian infrastructure sector. 

Reliance, which is chaired by billionaire Anil Ambani, has business interests in the power, roads, metro rail and cement sectors. The Indian firm is currently looking to sell stakes in its road projects and cement business, as it plans to focus on defense, a sector it has recently entered.