In a move to help indebted firms access funds to complete projects, Ajay Piramal-controlled Piramal Enterprises Ltd and Dutch pension fund APG Asset Management NV have tied up to invest $1 billion in Indian infrastructure companies over the next three years.
A sluggish economy and stalled bureaucratic decision-making for the past two years have thwarted capital investment and dented earnings, making it tough for infrastructure companies to raise funds and launch or complete road and power projects.
Piramal and APG have each initially committed $375 million for investments under the alliance, the companies said.
They will invest in local infrastructure companies through rupee-denominated mezzanine instruments, the two sides said in a joint statement.
Mezzanine debt, commonly issued by private equity firms to infrastructure companies, is a hybrid of debt and equity financing.
Many Indian infrastructure companies borrowed heavily in the past few years when the economy was one of the fastest growing in the world, but were squeezed by a slowdown in growth last year and a slide in the rupee to record lows.
India has ambitious plans to fix infrastructure with an aim to spend $1 trillion on the sector by 2017, half of it from private sources.
APG had already been an investor in Indian infrastructure through its funds. The alliance with Piramal marks the Dutch pension fund’s first direct investment in domestic infrastructure companies.
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. 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 companies said in the statement.
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 ongoing infrastructure projects and enhance shareholder value, the statement said.
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.