Investment in Indian highways could accelerate in 2021 following a year of stalling activity among state-owned investors, in the wake of the Covid-19 pandemic.
CDPQ could soon make its second Indian road acquisition this year with reports that the Canadian public pension fund is looking to buy a section of arterial highway between the country's financial capital Mumbai and the eastern metropolis of Kolkata.
The purchase of the highway, with an estimated value of US$110 million, comes after the US$244 billion Québec province public pension fund snapped up a 67 km road project in Odisha last month.
CDPQ's revived interest in Indian road infrastructure marks a turnaround from 2020 when the dramatic effects of lockdown sent the Indian economy into a tailspin in Q2 2020. Canadian PPFs paused their investments from May. CPP suspended its US$190 million investment in an infrastructure arm of Mumbai-based logistics firm JM Baxi, and CDPQ halted the purchase of the US$325 million Highway Concessions One portfolio from GIP, its first acquisition of roads in India. The two funds had previously been among the biggest investors in the country’s public and private equity markets.
Global SWF estimates that from 2016, state-owned investors have spent approximately US$3.5 billion on direct investment in Indian road acquisitions with Canadian PPFs leading the charge. This is on top of the allocations to the Master Fund of the National Investment and Infrastructure Fund (NIIF), which recently closed with US$2.34 billion from ADIA, AustralianSuper, CPP, OTPP, PSP and Temasek, as well as USA’s IDFC, the government of India and four Indian leading institutions. The institution is now fundraising for a Strategic Opportunities Fund (direct private equity) and a Fund of Funds, targeting a total of US$6 billion assets under management.
As the Indian economy motors out of the pandemic pitstop, SOI investment in Indian roads is likely to speed up, fuelled by government policy initiatives. The Indian government's National Infrastructure Pipeline (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. As part of India’s aggressive drive to woo SOIs, the FY2020/21 budget provided a tax exemption for specified infrastructure investments. Mubadala became the first SWF to be granted 100% income tax exemption for long-term infrastructure investments in November.