India luring Canadian investors
Brookfield, Canada Pension sign deals in world’s fastest growing major economy
Canada’s biggest asset managers, never afraid to push the investing envelope, have been loading up on Indian assets — big time.
Investors including Brookfield Asset Management Inc. and Canada Pension Plan Investment Board have signed deals for mobile-phone towers, office properties, a stake in an airport and distressed debt, betting that scale outweighs risk in the world’s fastest-growing major economy. After record deals last year, the Canadians have ramped up their India investments to more than $20 billion, the bulk of it in the last few years, according to calculations compiled by Bloomberg.
“It is a very important, critical market for us,” Suyi Kim, Asia head for Canada Pension, said in an interview in Mumbai, citing India’s rapidly developing private-equity scene and a market big enough to absorb investments from the $298-billion fund. The Toronto-based manager bought a 10.3-per-cent stake in telecom-tower owner Bharti Infratel Ltd. with KKR & Co. in March for almost $1.4 billion, adding to investments of about $3.5 billion in the country as of December.
The Canadian funds have been lured by the size of the reward. They’re investing in a country that’s growing at more than 7 per cent and will have the world’s largest workforce by 2030. India’s benchmark stock index have surged to a record, outpacing the Canadian market by almost three times since Indian Prime Minister Narendra Modi took office and pledged to overhaul the economy to unleash the power of 1.3 billion people. The latest reform, a goods and services tax designed to unify the market and make doing business easier, is set to go into effect on July 1.
On Thursday, both India’s benchmark indexes touched record highs and are poised for their longest winning streak in almost three months. But India also has major challenges, including $246 billion of distressed debt, which at about 17 per cent of total loans, amounts to the world’s worst bad-loan ratio, and is slowing credit growth. Weak private investment, lacklustre productivity and red tape also threaten to hurt the $2.7-trillion economy.
Soured loans are where two big Canadian investors see opportunity. Caisse de dépôt et placement du Québec, which manages assets of about $270 billion for Quebec’s retirees, has a 20-per-cent equity stake in Edelweiss Asset Reconstruction Co., India’s largest buyer of delinquent debt. The Caisse said in October it is targeting $820 million to $960 million in stressed assets and specialized corporate credit in India over four years.
Brookfield also signed a memorandum of understanding in July with State Bank of India to set up a joint venture to invest in stressed assets, with the Canadian firm planning to contribute about $1.4 billion into the partnership. Anita George, managing director of South Asia for the Caisse praised the government’s attempts to get credit moving again. The government last week gave the Reserve Bank of India, the nation’s central bank and financial regulator, new powers to spur lenders and borrowers to take writedowns.
Still, George is under no illusions about a country that can throw investors a “googly,” using the cricket term for a ball that comes at you from an unexpected quarter. That’s why the Montreal-based fund invests as a minority partner, she said.
“To be very frank, often we have a lot to learn,” George said in an interview in Mumbai. Indian companies don’t like to give up control so it works out for both sides, though the Caisse is very involved in governance and insists on board seats, she said.
Arepresentative for Brookfield said the Toronto-based company declined to comment on its India push. The company agreed to a couple of deals in October that more than doubled its Indian assets to $6.8 billion. It bought mobile-tower assets for an upfront payment of about $2.2 billion in the largest privateequity deal in the country to date and commercial property for about $1 billion. India has always been viewed as high-risk, high-reward for global investors, said pension expert Malcolm Hamilton, a fellow at Torontobased C.D. Howe Institute, an economic research firm. “Modi’s government gives investors greater confidence.”
Apart from the demographics, the scale of the country’s entrepreneurial class is also a major draw, George said.