ET Bureau
Ajay Piramal's flagship Primal Enterprises Ltd (PEL) on Wednesday announced that it has tied up with the world’s second largest pension fund APG Asset Management (APG) for a strategic alliance to invest a billion dollars in India’s infrastructure. The 50:50 JV will make structured investments in the form of mezzanine financing in rupees. Both PEL and APG are initially putting in $375 million (Rs 2,250 crore) each and over the next 3 years plan to ramp up their investment target to $1 billion (Rs 6,000 crore). ET had broken the story in its July 30 edition.
Hans-Martin Aerts, Director, Head of Infrastructure Asia, APG and Jayesh Desai, Co-head Structured Investments Group, Piramal Enterprises, explain the rationale and their investment strategy going forward to Arijit Barman. Edited excerpts from the interview.
India's infrastructure sector has gone through the most difficult times in the last few years. Are you confident of a turnaround?
Aerts: In the last few years, India has indeed proven to be a challenging market for investors. Policy inaction has plagued India’s economy in the last several years. We believe that the infrastructure sector in India is now at an inflection point. The new government is committed to introducing key reforms, which will enable further economic growth and help to bridge the infrastructure gap in India.
What's giving you that confidence? Is it the new government in New Delhi?
Aerts: The infrastructure sector is expected to benefit significantly from the key reforms that new government is planning to undertake. The key for private investors is to know the circumstances under which they are making investments. Increased political and regulatory stability will significantly reduce perceived risk for infrastructure investors. Less bureaucracy and better coordination across various authorities will have a positive impact on project execution and will contribute to the further development of India’s infrastructure sector.
How did the JV discussions begin and how did it come about?
Desai: The JV discussions started roughly at the beginning of the year with a visit by Hans - Martin Aerts, the head of Infrastructure, Asia for APG. Around the beginning of the second quarter, Mr. Piramal met with the CEO of APG in Netherlands and both parties came out of the meeting with the feeling that they were dealing with like - minded organizations with very similar values. The discussions picked up pace thereafter and very speedily concluded.
What will APG bring to the table other than the dollars of course?
Desai: Apart from the fact that philosophically, the two organizations are very closely aligned, APG brings strong investing and infrastructure experience - not just in India but globally. APG has been an investor in India since 2007 - while that has largely been as an LP in various funds, APG has acquired a significant understanding of the space in India. The global / Asia perspective also helps in making reasoned decisions. It is PEL's perspective that working with like - minded organizations like APG will lay the foundation for a continuing and growing investing business.
Two investment platforms this year so far. For Piramals is that going to be a strategy going forward.
Desai: Both the current alliances are exclusive for the sectors and the nature of investments in these sectors. Our objective is to build a long term sustainable business in investing and funds management and to the extent that we can work with like - minded culturally aligned organizations like APG or for that matter CPPIB, we would be happy to look at such partnerships.
What made APG change its strategy and invest directly through a JV. You were largely an LP for India centric funds before?
Aerts: As our infrastructure portfolio has evolved, the overall trend has been a move away from fund investing and toward direct and co-investing. This allows us to stay in control over capital allocation and retain discretion over key investment decisions. It has also proved to be a more cost-efficient way of investing.
Will APG look at more similar JVs for other asset classes like say real estate?
Aerts: Over the last few years APG has been active in the Indian real estate sector where we have created partnerships with groups like Godrej Properties, Lemon Tree and Xander. If suitable opportunities continue to present themselves, we may look to expand such partnerships.
The Structured Investment Group already had a pool of $2 bn of propreitary money from PEL. Why go to JV then?
Desai: The money is not the only significant part of the transaction - as covered in the earlier response, it is the opportunity of being able to work with culturally aligned organizations with a global perspective which will enable us to build a sustainable business. We believe that over the medium to long term, the money needs of infrastructure are significant and India will need to attract external capital.
Currently the commitment is of a billion dollars. But Indian infrastructure needs massive pools of capital. Is there a plan in place to also look beyond this as well?
Aerts: Asia has been a key focus for APG. India is seen as an attractive investment destination for long-term investors seeking to enhance the overall risk-adjusted return of their investment portfolio. We will continue exploring new investment opportunities, predominantly through joint-ventures and co-investments alongside strong, like-minded partners.
The APG-Piramal JV will now provide mezzanine funding. But would you also look to take equity positions in Indian infrastructure assets or SPVs or even companies?
Aerts: The current market circumstances provide a unique opportunity for a mezzanine investment strategy, which allows us to tap into a large pool of infrastructure assets that can serve as effective security for our investments. We would also look at equity positions if that would provide for a more compelling risk-adjusted return.
What happens to the existing investments in the portfolio. Will they get subsumed in this JV too?
Desai: We will discuss with APG the existing investments and whether they wish to participate in it - however the alliance has been generally formed to look at future investments.
You have widened the scope to include social infrastructure as well (education, healthcare). Why?
Desai: These areas were already under consideration earlier - it is generally in line with the definition of infrastructure.
You were open to buyouts/controlling stakes in infrastructure as well. Is that plan still relevant and active? Will the JV look for a similar strategy too?
Desai: The JV will focus on mezzanine investments only - PEL will continue to look at the buyout strategy separately.
Will APG focus on India largely remain focussed on infrastructure?
Aerts: We already have meaningful exposure to India through listed equities, private real estate investments as well as infrastructure. As India continues to develop, we see it as an important market for various investment strategies across asset classes.
Distressed debt is becoming a big business as ARCs reinvent themselves. Would that space be of any interest to PEL?
Desai: We are watching the developments in the distressed debt space with interest - while we currently do not have any plans in this regard, we will continually assess whether it fits in with our overall investing and funds management business.
Hans-Martin Aerts, Director, Head of Infrastructure Asia, APG and Jayesh Desai, Co-head Structured Investments Group, Piramal Enterprises, explain the rationale and their investment strategy going forward to Arijit Barman. Edited excerpts from the interview.
India's infrastructure sector has gone through the most difficult times in the last few years. Are you confident of a turnaround?
Aerts: In the last few years, India has indeed proven to be a challenging market for investors. Policy inaction has plagued India’s economy in the last several years. We believe that the infrastructure sector in India is now at an inflection point. The new government is committed to introducing key reforms, which will enable further economic growth and help to bridge the infrastructure gap in India.
What's giving you that confidence? Is it the new government in New Delhi?
Aerts: The infrastructure sector is expected to benefit significantly from the key reforms that new government is planning to undertake. The key for private investors is to know the circumstances under which they are making investments. Increased political and regulatory stability will significantly reduce perceived risk for infrastructure investors. Less bureaucracy and better coordination across various authorities will have a positive impact on project execution and will contribute to the further development of India’s infrastructure sector.
How did the JV discussions begin and how did it come about?
Desai: The JV discussions started roughly at the beginning of the year with a visit by Hans - Martin Aerts, the head of Infrastructure, Asia for APG. Around the beginning of the second quarter, Mr. Piramal met with the CEO of APG in Netherlands and both parties came out of the meeting with the feeling that they were dealing with like - minded organizations with very similar values. The discussions picked up pace thereafter and very speedily concluded.
What will APG bring to the table other than the dollars of course?
Desai: Apart from the fact that philosophically, the two organizations are very closely aligned, APG brings strong investing and infrastructure experience - not just in India but globally. APG has been an investor in India since 2007 - while that has largely been as an LP in various funds, APG has acquired a significant understanding of the space in India. The global / Asia perspective also helps in making reasoned decisions. It is PEL's perspective that working with like - minded organizations like APG will lay the foundation for a continuing and growing investing business.
Desai: Both the current alliances are exclusive for the sectors and the nature of investments in these sectors. Our objective is to build a long term sustainable business in investing and funds management and to the extent that we can work with like - minded culturally aligned organizations like APG or for that matter CPPIB, we would be happy to look at such partnerships.
What made APG change its strategy and invest directly through a JV. You were largely an LP for India centric funds before?
Aerts: As our infrastructure portfolio has evolved, the overall trend has been a move away from fund investing and toward direct and co-investing. This allows us to stay in control over capital allocation and retain discretion over key investment decisions. It has also proved to be a more cost-efficient way of investing.
Will APG look at more similar JVs for other asset classes like say real estate?
Aerts: Over the last few years APG has been active in the Indian real estate sector where we have created partnerships with groups like Godrej Properties, Lemon Tree and Xander. If suitable opportunities continue to present themselves, we may look to expand such partnerships.
The Structured Investment Group already had a pool of $2 bn of propreitary money from PEL. Why go to JV then?
Desai: The money is not the only significant part of the transaction - as covered in the earlier response, it is the opportunity of being able to work with culturally aligned organizations with a global perspective which will enable us to build a sustainable business. We believe that over the medium to long term, the money needs of infrastructure are significant and India will need to attract external capital.
Currently the commitment is of a billion dollars. But Indian infrastructure needs massive pools of capital. Is there a plan in place to also look beyond this as well?
Aerts: Asia has been a key focus for APG. India is seen as an attractive investment destination for long-term investors seeking to enhance the overall risk-adjusted return of their investment portfolio. We will continue exploring new investment opportunities, predominantly through joint-ventures and co-investments alongside strong, like-minded partners.
The APG-Piramal JV will now provide mezzanine funding. But would you also look to take equity positions in Indian infrastructure assets or SPVs or even companies?
Aerts: The current market circumstances provide a unique opportunity for a mezzanine investment strategy, which allows us to tap into a large pool of infrastructure assets that can serve as effective security for our investments. We would also look at equity positions if that would provide for a more compelling risk-adjusted return.
What happens to the existing investments in the portfolio. Will they get subsumed in this JV too?
Desai: We will discuss with APG the existing investments and whether they wish to participate in it - however the alliance has been generally formed to look at future investments.
Desai: These areas were already under consideration earlier - it is generally in line with the definition of infrastructure.
You were open to buyouts/controlling stakes in infrastructure as well. Is that plan still relevant and active? Will the JV look for a similar strategy too?
Desai: The JV will focus on mezzanine investments only - PEL will continue to look at the buyout strategy separately.
Will APG focus on India largely remain focussed on infrastructure?
Aerts: We already have meaningful exposure to India through listed equities, private real estate investments as well as infrastructure. As India continues to develop, we see it as an important market for various investment strategies across asset classes.
Distressed debt is becoming a big business as ARCs reinvent themselves. Would that space be of any interest to PEL?
Desai: We are watching the developments in the distressed debt space with interest - while we currently do not have any plans in this regard, we will continually assess whether it fits in with our overall investing and funds management business.
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