$7,000,000,000 & Count­ing

The Economic Times - - Deep Dive - In­du­lal PM & Ari­jit Bar­man

From air­ports to e-com­merce; from reg­u­lated sec­tors like banking to lo­gis­tics and tele­com tow­ers, Cana­dian in­sti­tu­tional money is pour­ing into In­dia like never be­fore SUYI KIM MD, HEAD OF ASIA PA­CIFIC, CPPIB

For Anuj Ran­jan, the glo­be­trot­ting In­dia head of Brook­field, the fun­da­men­tal in­vest­ment the­sis be­hind buy­ing a large tele­com tow­ers port­fo­lio from Re­liance Com­mu­ni­ca­tions was not all that dif­fer­ent from tak­ing over Hi­ranan­dani’s 4.5 mil­lion square foot of swish of­fice and shop­ping space in the fi­nan­cial cap­i­tal. The world’s largest democ­racy with a bil­lion-plus pop­u­la­tion needs to com­mu­ni­cate, share in­for­ma­tion as well as work and­play­to­sus­tainit­stril­lion-dol­lare­con­omy.

More im­por­tantly, both are scaled-up, in­come-gen­er­at­ing op­er­a­tional as­sets, which can be lever­aged fur­ther us­ing their global ex­per­tise to build out larger plat­forms. Sim­i­larly, they have high mar­gins with low cap­i­tal ex­pen­di­ture go­ing for­ward and built-in es­ca­la­tors.

With as­sets worth $ 250 bil­lion un­der man­age­ment, Toronto-based Brook­field is the world’s sec­ond big­gest man­ager of al­ter­na­tive as­sets. So, cap­i­tal has never been a hand­i­cap for Ran­jan and his 1,000-odd In­dia team, who have been scout­ing around for com­pelling sto­ries across emerg­ing mar­kets. When both the Hi­ranan­dani of­fice port­fo­lio and the Re­liance tow­ers came up for grabs last sum­mer, Brook­field jumped head­long.

By the end of the year, they wrote a $2.6 -bil­lion cheque to stitch up both — ar­guably among the largest FDI com­mit­ments in In­dia in 2016. The Brook­field-Re­liance In­fratel trans­ac­tion worth $1.6 bil­lion alone is also the sec­ond-big­gest pri­vate eq­uity trans­ac­tion ever in the coun­try, be­hind Te­masek’s $2-bil­lion in­vest­ment in Bharti Air­tel in 2007.

Call it Canada call­ing. The bulge bracket Cana­dian as­set man­agers from pen­sion to PE funds have been the big­gest In­dia bulls in the last one year. Be­tween mar­que names like Canada Pen­sion Plan In­vest­ment Board (CPPIB), Caisse de de­pôt et place­ment du Que­bec (CDPQ), On­tario Teach­ers or Brook­field and Fair­fax, they have jointly com­mit­ted $7-8 bil­lion across com­pa­nies and funds so far, ac­cord­ing to in­dus­try es­ti­mates. This would be among the sin­gle­largest coun­try­wide com­mit­ment to­wards In­dia in re­cent times. The num­ber be­comes even more strik­ing once com­pared with FDI or trade data. Canada has never been a top in­vest­ment source for In­dia with bi­lat­eral trade touch­ing

Mid­dle East­ern sov­er­eign wealth fund in­ter­ests. His­tor­i­cally, though, they have al­ways been in­di­rect in­vestorsthroughthe­glob­al­funds that they have backed and in­vested in LPs. Way back in 1994, CDPQ in­vested $250,000 in IndOcean’s fund — the first in­stance of Cana­dian in­sti­tu­tional money trick­ling into In­dia. Then, for al­most 22 years, there was lim­ited trac­tion till CDPQ and CPPIB set up of­fices here. But now the in­volve­ment is proac­tive. This has also led to a wind­fall for home­grown PE ex­ec­u­tives. Sev­eral do­mes­tic funds like Renuka Ram­nath’s Mul­ti­ples, True North (for­merly IVFA) or even Kedaara Cap­i­tal to­day count the Cana­di­ans like CPPIB or PSP In­vest­ments as among their key spon­sors dur­ing fundrais­ing.

“Ear­lier, they used to in­vest through gen­eral part­ners like large PE funds, both domi­cile and global funds like ours. But now they have started in­vest­ing di­rectly in big num­bers. Their con­fi­dence in tak­ing the macro In­dia risk is good for the coun­try,” agrees San­jay Na­yar, CEO, KKR in In­dia.

But the ag­gres­sion also changes the tried and tested in­dus­try dy­nam­ics. “Once they have tasted blood and built lo­cal ca­pa­bil­i­ties, why would they share man­age­ment fees and carry with their GPs,” asked an In­dia head of a global buy­out fund on con­di­tion of anonymity. That means in larger trans­ac­tions in in­fra­struc­ture or real es­tate, the big as­set man­agers are cre­at­ing di­rect com­pe­ti­tion to tra­di­tional bulge bracket PE names or SWFs like GIC or ADIA. Al­ter­na­tively, they are chas­ing co-in­vest­ment op­por­tu­ni­ties. Both Blackstone and KKR, for ex­am­ple, teamed up with­CPPIBwhenLa­farge’sIn­di­aas­setscame on the block or, more re­cently, to buy Bharti In­fratel,In­dia’ssec­ond-largest­t­ele­com­tow­ers com­pany. “It’s a com­plex mar­ket but mov­ing in the right di­rec­tion. One of the rea­sons we es­tab­lished an on-the-ground pres­ence with strong lo­cal ta­lent was to help us un­der­stand and nav­i­gate this com­plex­ity,” Kim adds. owner and op­er­a­tor of high-pro­file chunky as­set­sand­com­plexbusi­nesses.“Peo­pleaskus whether we are a strate­gic buyer or a PE fund. In fact, we are a strate­gic in­vestor that evolved into a pri­vate eq­uity fund over a decade ago, and so we ac­tu­ally bring both to­gether,” Ran­jan had told ET in an ear­lier in­ter­ac­tion.

For most of them now, the wa­ger is on the macro­fun­da­men­tal­sev­eniftheop­por­tu­ni­ties are spe­cific and mi­cro. “With av­er­age global growth at 2%, In­dia’s growth prospects are at­trac­tive,” said Anita Marangoly Ge­orge, MD, South Asia, CDPQ. “In­dia’s at­trac­tive labour force — young and grow­ing — is one of its key as­sets. Progress is be­ing made in In­dia’s gov­er­nance through sev­eral struc­tural re­forms, in­clud­ing the pas­sage of the GST Bill and the Bank­ruptcy code, among oth­ers.”

For pa­tient cap­i­tal providers, growth is in­creas­ingly be­com­ing dif­fi­cult to find around the world and, as the world’s sec­ond­fastest-grow­ing ma­jor econ­omy, In­dia of­fers a run­way “that looks ex­cit­ing” over the next 10-15 years. “The global eco­nomic bal­ance has been chang­ing fast, so a lot of the fund man­agers felt they, too, needed to al­lo­cate as­sets ac­cord­ingly and build global ca­pa­bil­i­ties. More­over, with China and Brazil hav­ing slowed down In­dia is much more at­trac­tive,” ar­gues Vikram Gandhi, founder VSG Cap­i­tal, a long-time ad­vi­sor to CPPIB.

Some feel Watsa’s bil­lion-dol­lar In­di­aspe­cific fund raised after his meet­ing with PrimeMin­is­terNaren­draModi­inNovem­ber 2014 was a wa­ter­shed. “When Prem went out and raised a fund, there was a call to ac­tion. It was a new gov­ern­ment and there was more ur­gency than ever be­fore,” ar­gues Har­sha Ragha­van, CEO of Fair­bridge Cap­i­tal.


“We look for lo­cal part­ners who we can work with for the long-term, whom we can scale up with over mul­ti­ple cy­cles and are among the very best at what they do. And, in In­dia, we have es­tab­lished some very strong part­ner­ships that we’re con­fi­dent will help us re­alise our in­vest­ment ex­pec­ta­tions,” says CPPIB’s Kim whose firm has cho­sen a di­verse set – L&T, Shapoorji Pal­lonji, and Ko­tak Mahin­dra — as lo­cal part­ners. They help to nav­i­gate a com­plex mar­ket like In­dia, in build­ing crit­i­cal mass and in­tel­li­gence.

CDPQ, too, is look­ing at cre­at­ing a ₹ 5,000 crore as­set re­con­struc­tion plat­form with home-grown Edel­weiss Fi­nan­cial Ser­vices, while Brook­field and SBI look to launch a $1-bil­lion distress debt fund. Along with Tatas, ICICI Ven­ture and two other SWFs from the Mid­dle East, CDPQ has also launched a ded­i­cated $ 850-mil­lion in­vest­ment ve­hi­cle to scoop up trou­bled and stranded power units across the coun­try.

But for their long-term sus­tain­abil­ity, sta­ble pol­i­cyis­crit­i­cal.“Whilethereg­u­la­to­ryframe­work has im­proved sig­nif­i­cantly, it is key that th­ese reg­u­la­tions re­main con­sis­tent,” warns CDPQ’sGe­orge.“The­growthratein­sev­er­alof the key sec­tors in In­dia also makes it a highly com­pet­i­tive mar­ket. Val­u­a­tion mul­ti­ples, too, in most sec­tors are higher than in most de­vel­oped mar­kets.”

Meaty­op­por­tu­ni­tiesarestill­hard­to­comeby. So far, much of the Cana­dian in­vest­ments are not flow­ing in as FDI to back phys­i­cal as­sets, butare­large­lythroughe­quity­mar­kets.“Risk is­no­tap­pro­pri­ate­lypricedyet,”saidase­nior­in­vest­mentof­fi­cial­who­did­notwish­to­be­quoted. “Showmetheop­por­tu­ni­tieswhereI­can­putin afew­bil­lion­sof­dol­lars.Cap­i­tal­is­no­taprob­lem wheny­ouhaveatril­lion­dol­larsinthep­en­sion pool, chunky deals are.”

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