Global pension funds back in India, sentiment upbeat

Th CPPIB investment in the L&T arm — the first direct private investment by a Canadian pension fund in an Indian infrastructure development company.

Written by Anil Sasi | New Delhi | Published:June 29, 2014 1:04 am

After a hiatus of 12-odd months, a sudden pick-up in investment proposals anchored by global pension funds in the Indian infrastructure, realty and service sector companies is being seen as a reaffirmation of the turnaround in investment sentiment.

The Canada Pension Plan Investment Board (CPPIB), earlier this week, proposed investments to the tune of Rs 2,000 crore in L&T Infrastructure Development Projects Ltd, an unlisted subsidiary of engineering and construction major Larsen & Toubro (L&T). The CPPIB is a professional investment management organisation that manages C$219 billion and invests the Canada Pension Plan’s assets that are not immediately needed to pay pension, disability and survivor benefits.

This came close on the heels of a deal in May where CPPIB picked up a 3.24 per cent stake in private sector lender Kotak Mahindra Bank from a promoter group entity for Rs 2,200 crore.

Th CPPIB investment in the L&T arm — the first direct private investment by a Canadian pension fund in an Indian infrastructure development company — comes at a time when the NDA government is trying to kickstart stalled infrastructure projects including power plants and roads, and attract new investments to revive growth.

According to André Bourbonnais, senior vice-president, private investments, CPPIB, the investment “fits well with his company’s strategy for India as a key long-term growth market”.

L&T Infrastructure’s business includes development of roads and bridges, ports, metro rail, power transmission lines, wind energy and emerging sectors such as water and railways. It handles infrastructure assets with an estimated cost of $7.5 billion comprising 23 projects.

A month earlier, Dutch pension fund manager APG Asset Management and PE firm Xander launched a $300 million (Rs 1,800 crore) fund that will buy high quality income-generating office assets in India’s main office markets. “Over time, if buying opportunities continue to emerge, the venture’s size may be increased to $500 million,” APG had said in a statement at the time of the investment.

Pension funds are broadly seen to be relatively stable long-term investors. An increased inflow of such funds are perceived as a stable factor for the markets as they are generally not seen as in the fray for short-term gain.

The APG investment plan, for instance, clearly looks at the longer time-frame, aiming to benefit from the demand for office space coming in from companies across sectors such as IT and financial services and plans to solely focus on built, and significantly leased office assets in Mumbai, NCR, Bangalore, Hyderabad, Chennai and Pune.

“In spite of the recent slowdown, India’s top six cities have consistently witnessed the largest net absorption of office space in the Asia-Pacific region, and perhaps globally. This, combined with limited new development starts for office projects in India, creates a unique demand-supply gap for good quality office space that our venture aims to target,” said Sachin Doshi, head of non-listed real estate for Asia-Pacific at APG in Hong Kong.

Companies across Europe indicated an increased appetite for global expansion into India, according to a CBRE report in April. Almost half of the firms surveyed said India was their destination of choice because of rapid population growth and gradually recovering economic prospects, beating China as a preferred location, CBRE’s European Occupier Survey showed.

In fact, pension funds and sovereign wealth funds’ holdings of Indian equity have increased by Rs 23,758 crore since the beginning of the calendar year, in anticipation of improving macro economic fundamentals and a stable government at the Centre.

The total assets with these two sections of investors rose from Rs 2.18 lakh crore in December 2013 to Rs 2.42 lakh crore till April 2014, according to Sebi data.

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