India's Piramal Enterprises Limited (PEL) and APG Asset Management, the Dutch pension fund asset manager, yesterday announced a strategic alliance for investing in rupee denominated mezzanine instruments issued by infrastructure companies in India with a target investment of US$ 1 billion over the next 3 years. PEL and APG have each initially committed US$375 million for investments under this strategic alliance.
This is one of the largest private sector commitments to the infrastructure sector in India and one of the single largest commitments to date by a foreign investor to the infrastructure sector in India.
Ajay Piramal, Chairman of PEL said:
"We are extremely pleased to be partnering with an institution like APG who is a like-minded, focused and committed global investor. This is an opportune time to be creating an aligned pool of capital to target what we believe to be very compelling funding opportunities in the infrastructure sector in India. The alliance is consistent with PEL's long-term plan and vision of playing a contributing role towards investments that promote growth. This is the single largest investment of APG in the unlisted space in India till date and underlines the confidence reposed by institutional investors in Piramal Group's capabilities."
Dick Sluimers, CEO of APG said:
"APG puts a great deal of effort and time into selecting the right partners and forming long-term relationships. In PEL, we found an aligned partner with the requisite expertise and industry knowledge to add value through active ownership, which is why we have teamed up with PEL for this strategic alliance in India. The strategy of the alliance to focus on mezzanine investments in infrastructure projects in India ticks the right boxes for our pension fund clients in terms of risk-return profile and high cash flow visibility."
This strategic pool of capital will focus on operational and near completion projects with limited execution risks and high visibility of cash flows coming from a portfolio of projects. The access to this source of capital will enable infrastructure players in India to retain their equity interest in the assets, while raising long term capital to help them complete their on-going infrastructure projects and enhance shareholder value.Jayesh Desai, co-Head of Structured Investment Group (SIG), PEL said:
"Indian infrastructure players have moved up in maturity scale as the portfolio of operational projects has increased and hence, is lending high visibility to future cash flows. Over USD 150 billion of equity and mezzanine funding is required to meet government target investment of USD 1 trillion until 2017, and this is the gap which our strategic alliance seeks to bridge. Mezzanine investments for infrastructure sector in India offers a compelling investment proposition as it addresses the void in the capital stack, which currently exists in the market place. This is due to the constraints of commercial banks in India to provide only senior secured lending at asset level where there is limited headroom, especially in cases where there has been delay in project execution".
Hans-Martin Aerts, Head of Infrastructure Asia, APG said:
"We are very pleased to partner with PEL in this venture. The current market circumstances where there is a mismatch between demand and supply of capital creates a window of opportunity to make mezzanine investments in Indian infrastructure. We believe that the infrastructure sector in India is at an inflection point. Given the strong push of the new government on sector revival through conducive policy measures, the funding from this strategic alliance will help infrastructure companies to recycle capital and contribute significantly to the further development of India's infrastructure sector."
PEL has demonstrated strong sourcing and risk underwriting capabilities, and has developed a strong track record in providing mezzanine funding to corporates in various sectors including infrastructure.
Macquarie Capital acted as the sole financial advisor for the transaction.