Piramal, Netherlands’ APG to jointly fund infrastructure projects

Piramal Enterprises Ltd has joined with Dutch pension fund firm APG Asset Management NV in a strategic alliance for investing in rupee-denominated 'mezzanine instruments', which are a hybrid of debt and equity financing, and are issued by infrastructure companies in India.

The tie-up has targeted an investment of $1 billion over the next three years. The Ajay Piramal-controlled Piramal Enterprises and APG have initially committed $375 million each 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.

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

The strategic pool of capital will focus on functioning and near-completion projects with limited execution risks and visible cash flows coming from a portfolio of projects, the companies said in a joint press statement.

Access to this source of capital will enable infrastructure developers 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.

Jayesh Desai, co-head of structured investment group (SIG) at Piramal Enterprises said over $150 billion of equity and mezzanine funding is required to meet the government's target investment of $1 trillion until 2017, and this is the gap which his firm's strategic alliance is seeking to bridge.

''Mezzanine investment in the infrastructure sector in India offer a compelling investment proposition as it addresses the void in the capital stack, which currently exists in the marketplace. 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,'' Desai said.

Hans-Martin Aerts, head of infrastructure Asia at APG, 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.

APG Asset Management managed pension assets worth €375 billion as of June 2014.

Piramal Enterprises is one of India's largest diversified companies, with a presence in pharmaceuticals, healthcare information management and financial services.

Piramal's structure investment group invests in various sectors, including infrastructure.

The strategic alliance comes at a time when more than Rs.6 trillion ($100 billion) worth of projects in India have been stalled as of 31 March, according to the Centre for Monitoring Indian Economy (CMIE), a Mumbai-based independent think tank.