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Global pension giants queue up to tap India's cash-generating assets

Abhineet Kumar  |  Mumbai 

Global pension funds' long-term capital is finally finding its way into India, where about $35 billion worth of were created in the past decade. The availability of these assets, known as "brownfield" in industry parlance, is set to grow further on the back of the government's emphasis on infrastructure.

Brownfield assets mean assets that are up and running with some revenue stream.


Major such as (CPPIB) and Holland's APG have already established their presence in India. Now, more funds including Ontario Teachers' Pension Plan are believed to be actively exploring opportunities here.

LANDING IN INDIA
  • Global pension funds’ long-term capital is finally finding its way into India
  • The availability of these assets is set to grow further on the back of the government’s emphasis on infrastructure
  • Major such as CPPIB and Holland’s APG have already established their presence in India
  • More funds including Ontario Teachers’ Pension Plan are believed to be actively exploring opportunities here
  • In 2002-12, private spending in infrastructure was about Rs 9.3 lakh crore

"Quite a few pension funds from Western Europe and North America are exploring the opportunity to increase their exposure to India, as there are more brownfield assets available today and the sentiment has improved with more proactive actions being taken by the government," says Delhi-based VSG Capital Advisors' founder Vikram Gandhi, who is also a senior advisor to CPPIB for its investments in India.

Pension funds essentially manage funds for people who are retiring. Retirees need long-term assets that give consistent returns. There is obviously risk in every asset, but risk is much lesser in brownfield assets than in start-ups or other businesses, which have competition risk.

Brownfield assets can be for real estate such as office space or IT Park, which has tenants and cash flow. Brownfield can also be for infrastructure projects such as roads and power plants, where there is government concession to collect toll and power purchase agreements, respectively.

In 2002-12, private spending in infrastructure was about Rs 9.3-lakh crore. On a debt-equity ratio of 70:30, about Rs 2.8-lakh crore worth of risk capital is at work currently. These assets are largely operational and form a pipeline for capital recycling through replacement of investors. According to the estimate provided by Mumbai-based Infrastructure Leasing & Finance Service, a fourth of these worth Rs 1-2-lakh crore ($17-35 billion) offer yield-seeking investments. Today, these assets are available with a yield expectation of 15-17 per cent.

"The trend has started now and my guess is that it will accelerate as the availability of these brownfield assets grow to meet the infrastructure needs of the country," says Gandhi.

CPPIB, which has assets worth $229 billion, recently accelerated its investments in India. Late last year, it announced a strategic alliance with Indian construction giant Shapoorji Pallonji Group to acquire office buildings in Indian metropolitan cities. CPPIB has invested $200 million as initial capital investment and it owns 80 per cent of this venture. Early this year, the pension giant also announced a Rs 2,000-crore investment in L&T Infrastructure Development Projects.

This was followed by Dutch pension giant APG Asset Management's tie-up with billionaire Ajay Piramal-promoted Piramal Enterprises a month ago. The joint venture plans to invest $1 billion over the next three years in infrastructure The company has also already zeroed in on some road projects and the investment announcement is expected to come soon.

"We are indeed seeing increasing interest from global institutional investors to invest in the Indian infrastructure sector. Most of them are still wary of green-field risk in India and, hence, tend to focus only on assets in operation," says Hans-Martin Aerts, head of infrastructure (Asia) at APG. The Dutch firm has pension assets worth ^375 billion ($492 billion).

The 12th five-year Plan for the government for the period 2012-17 envisages $1 trillion worth of investment in infrastructure. Half of this amount is expected to come from the private sector, with an expected equity contribution of $150 billion.

"There is a large pool of operational assets held on the balance sheets of developers, who need to de-leverage and recycle capital and there are also a lot of infrastructure projects that require last-mile funding to achieve project completion," says Aerts, who seeks to invest in both kinds of assets.

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