Billionaire Ajay Piramal-led Piramal Enterprises Ltd and Canada Pension Plan Investment Board (CPPIB) have signed an initial pact to co-sponsor a renewable energy-focussed Infrastructure Investment Trust (InvIT).
The InvIT will have an initial corpus of $600 million (Rs 4,160 crore) with an option to increase it further, Piramal said in a statement. The Canadian pension fund will contribute $360 million to this corpus while Piramal will put in $90 million. The trust will seek to raise the remaining amount from other investors.
The InvIT will seek to acquire up to 1.5-2 gigawatt of stable and cash-generating renewable energy assets on a hold-to-maturity basis, the statement said.
The co-sponsors of the proposed InvIT, which claims to be the first such vehicle focussed on renewable energy, will cumulatively hold 75% of the units. Of this, CPPIB will hold up to 60% while Piramal will own up to 15%. Piramal will be the sole investment manager as well as project manager for the proposed InvIT.
Piramal Enterprises operates mainly in the financial services, pharmaceuticals and healthcare sectors. But the pact with CPPIB indicates the company is now looking to expand its footprint in the infrastructure and renewable energy sectors.
The group reported consolidated revenue of over $1.9 billion for 2018-19, with nearly 40% of it generated from outside India, according to the statement.
“The renewable energy sector is at an inflection point and is witnessing significant consolidation, the pace of which is likely to increase in the near future. We believe that the timing is therefore opportune for aggregating assets in this sector given that the existing players are willing sellers in light of a constrained capital market environment - both debt and equity,” said Ajay Piramal.
Headquartered in Toronto, CPPIB is Canada’s largest pension fund with $368.5 billion in assets under management. It invests in public equities, private equities, real estate, infrastructure and fixed income instruments.
CPPIB had invested in the InvIT of L&T Infrastructure Development Projects Ltd (L&T IDPL). Another Canada pension fund, OMERS, bought 22.4% interest in L&T IDPL for Rs 870 crore.
Last week, global alternative assets manager KKR said it would acquire a controlling stake in Sterlite Investment Managers Ltd and purchase a sizeable portion of units in India Grid Trust, an InvIT that holds several power transmission projects. Singapore sovereign wealth fund GIC is also participating in the multi-layered transaction.
The rising interest of private equity firms and strategic players in InvITs is not a suprise. In fact, despite the early hiccups, many InvIT sponsors and operators are either actively looking to raise capital or acquire assets to increase their asset base.
This is after the capital markets regulator Securities and Exchange Board of India (SEBI) approved increasing the leverage limit for InvITs and real estate investments trusts (REITs) to 70% of assets from 49% to boost newer InvITs to float their offerings and help the current ones raise more capital. The decision was part of the board meeting held in March this year.
Last December, the markets regulator sought to streamline the process of listing REITs and InvITs by allowing alternative investment funds (AIFs) and affiliates of merchant bankers to participate in the anchor allotment of such public offerings.
VCCircle had reported in January that India Grid Trust was looking to drive growth inorganically by acquiring assets.
India Grid Trust is among the three InvITs that have floated initial public offering since SEBI notified regulations in 2016 for setting up such trusts.
IRB Infrastructure Ltd was the first company to float an InvIT's IPO in May 2017, receiving high demand. However, IRB’s InvIT made a muted stock market debut with its units listing only at a slight premium to the fund’s initial offering price.
That rubbed off on India Grid Trust InvIT whose public offering coincided with IRB InvIT’s listing. Sterlite Power’s InvIT fared even worse, with the IPO struggling to find investors.
Thereafter, players such as L&T floated a private placement for their InvIT offerings while Anil Ambani’s Reliance Group and Gautam Adani’s Adani Enterprises called off their plans to float an InvIT.