A leading Indian infrastructure investment trust, Cube Highways Trust, has won the backing of Canadian public pension fund British Columbia Investment Management Corporation (BCI) and Abu Dhabi’s sovereign investor Mubadala as anchor investors in its INR52.2 billion (US$630 million) listing.
The InvIT, whose existing investors include the Abu Dhabi Investment Authority (ADIA), I Squared Capital and Japan Highways International, has a portfolio of 18 toll and annuity road assets with a total length of 1,424km. Cube Highways aligns well with BCI’s strategy of investing in infrastructure platforms, while Mubadala has sought to bolster its exposure to India’s growing infrastructure sector.
Other Canadian public pension funds have also made significant capital injections into the Indian road infrastructure. Last June, CPP Investments and OMERS ramped up their investments in the Indian road network, contributing a total of US$816 million to a US$1.2 billion deal by Indinfravit Trust an infrastructure investment trust, to acquire toll road assets from Brookfield. The portfolio comprises three toll roads and two annuity roads, adding to its portfolio of 13 operational road concessions with about 5,000km in five states. CPP holds a 46% equity stake and OMERS 22% in Indinfravit Trust; German insurer Allianz Capital Partners owns the remainder.
There are many factors counting in favor of sovereign fund investment in infrastructure at a time of both heightened risk and energy transition. Regulated assets like toll roads and utilities usually involve inflation-indexed increases in charges, which ensures a hedge against inflation – a particularly important factor at a time of heightened global inflationary pressures. Infrastructure also allows state-owned investors an opportunity to add value to assets and expand portfolios, as Cube Highways and IndInfravit are doing. Unlike venture capital, infrastructure has a high barrier of entry that prevents competitors, giving toll road operators a monopolistic position in the market.
India is particularly attractive due to its large population and growth potential. Infrastructure is the main Indian sectoral target of interest among state-owned investors. A US$270 billion plus pipeline of projects reflects the government’s aim to modernise Indian highways and upgrade the quality of roads as part of the country’s National Infrastructure Pipeline (NIP). The NIP aims to support growth of India’s infrastructure sector with total investment of US$1.4 trillion and is bolstered by liberalization of FDI regulations and highway privatization.
A notable development is the government’s pro-active approach to attracting sovereign investment, via the National Investment and Infrastructure Fund (NIIF). ADIA, AustralianSuper, CPP, OTPP, PSP and Temasek, as well as USA’s IDFC, the government of India and four Indian leading institutions, have contributed to the NIIF’s US$2.34 billion Master Fund, while also pledging to co-invest with the Indian quasi-SWF.
By segment, roads represent 21% of the capital deployed by state-owned investors in Indian infrastructure, with Canadian public pension funds contributing 57% of the total. Canadian public pension funds remain a dominant feature across the asset class, representing 27% of around US$25 billion of investment by state-owned investors in Indian infrastructure – including the NIIF – from 2016, with CPP the biggest Canadian investor representing 12% of the total. The leading sovereign investor in the sector is GIC, representing 20%, with its Singaporean stablemate Temasek contributing a further 5%. The UAE is another significant investor in the Indian infrastructure sector, with the combined muscle of ADIA, Dubai World, and Mubadala representing 17% of sovereign capital in Indian infrastructure. NIIF contributed 16% of the total investment over 2016-2023.