Piramal Enterprises, in partnership with Dutch pension fund manager APG Asset Management, will make their first investment in the infrastructure sector within six months.
On Wednesday Piramal Enterprises announced a strategic alliance with APG and the two companies will invest $1 billion in infrastructure projects in India over three years. The two groups have not created a separate joint venture company to manage investments.
Piramal Enterprises will be a co-investor and act as manager of investments and its role will include sourcing and recommending investment targets. The investment will be made equally and jointly by both companies and held by on their respective books.
Over the last few years Piramal group has diversified into areas such as information technology and financial services. Under its structured investment group the company already has financed two companies to tune of over Rs 1,100 crore but the tie up with APG, which manages assets woth 375 billion euros is its biggest bet in infrastructure financing. Piramal group is also keen to manage functional road assets but is yet to strike a deal.
"We are not infrastructure developers. We are financial investors. Infrastructure projects require long-term funding. We have a pool of capital. Our objective is to look at infrastructure financing over the long term and the alliance with APG will help,” said Jayesh Desai, co-head, structured investments, of the Piramal group.
The companies will look for investments in roads, ports, telecom towers power, education and health care sector using debt instruments such as debentures, bonds or even preference shares. "We are looking at over five years investment horizon and expecting a return of 17-21 percent,'' he added.
"We believe that the infrastructure sector in India is now at an inflection point. It is expected to benefit significantly from the key reforms that new government is planning to undertake. Increased political and regulatory stability will significantly reduce the risk profile of investments in the Indian infrastructure sector. As the focus of the alliance is on mezzanine investments, we can draw further comfort from the security cover that will protect our investments,'' Hans-Martin Aerts, Head of Infrastructure Asia at APG Asset Management.
"The alliance will seek to invest in operating assets with low volatility of cash flow and limited dependence on external demand factors to ensure the visibility and stability of the cash flow profile. In addition, it will strive to invest in companies with multiple projects. Such a portfolio approach will provide effective insulation against market, regulatory and operational risk of a single asset,'' he added. APG has been an investing in infrastructure in India since 2007 but most of its initial investments were through funds.
According to Sandeep Upadhyay, senior vice president and head (Infrastructure Solutions Group) Centrum Capital Ltd. "Sector focused funds specifically backed by the pension funds or multi-lateral funding agencies usually come at a lesser cost and with a longer gestation period, which is ideal for the infrastructure sector. Given the current state of the cash starved infra and power sectors such initiatives would come as a huge respite to the infra players."