$7,000,000,000 & Counting
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.
ANITA MARANGOLY GEORGE MD, SOUTH ASIA, CDPQ
“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.”