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Piramal, APG tie-up to bridge Infra funding gap

Piramal Enterprises Limited (PEL) and APG Asset Management, the Dutch pension fund asset manager, formed 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, the companies said.

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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,” they said.

Piramal Enterprises Limited (PEL) is one of India’s largest diversified companies, with a presence in pharmaceuticals, healthcare information management and financial services. PEL’s consolidated revenues were ~$ 750 million in FY2014. In the pharmaceutical space, PEL is one of leading custom manufacturing player globally, has presence in the global critical care segment with a portfolio of inhalation and injectable anaesthetics and its OTC business is ranked no. 7 in India. P

APG Asset Management N.V. is a Dutch pension fund asset manager in the Netherlands. For its pension fund clients and their 4.5 million active and retired participants from the public and private sectors representing over 30% of all collective pension schemes in the Netherlands, APG Asset

Ajay Piramal, Chairman of PEL said he considered it to be the right 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,” he added.

Piramal has been active in the investing space after selling his stake in a healthcare company at high valuation recently.

Dick Sluimers, CEO of APG said, “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, the companies 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,” said Jayesh Desai, co-Head of Structured Investment Group (SIG), PEL.

“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 acompelling 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 for Asia, APG, said , “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.”

Macquarie Capital acted as the sole financial advisor for the transaction.

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