With favorable long-term development objectives, ESG opportunities and rapid demographic and consumer change, Indian infrastructure investment has attracted sovereign wealth funds and public pension funds over recent years.
So far this year, state-owned investors have deployed US$2.2 billion in Indian infrastructure, up 35% over the total for 2021 but still a long way off from the record US$4.9 billion invested in 2020. India remains one of the hottest infrastructure markets for state-owned investors.
This week, The Mint newspaper reported that billionaire Gautam Adani is in early talks with Singapore’s Temasek and GIC, as well as other investors, in his efforts to raised more than US$10 billion in the Adani Group’s expansion in clean energy, ports and cement production. The industrial conglomerate is aiming to invest more than US$100 billion over the next 10 years.
According to The Mint, the capital will be raised through a series of tranches, including the sale of equities in the group’s portfolio companies.
Co-investment with Indian conglomerates is attractive for a variety of reasons. They have an established network of operations, a high level of vertical integration from energy to ports alongside a desire to seek penetration into new markets, and they have massive political leverage in a country where large-scale projects can be a lengthy and expensive grind for investors due to regulatory barriers and legal obstructions.
If the Singaporean investors, with combined AUM just shy of US$1 trillion, decide to back Adani’s ambitions, they will be emulating a similar strategy seen in 2020 when Abu Dhabi funds ADIA and Mubadala, Saudi Arabia’s PIF, Canadian public pension fund BCI, and GIC stumped up US$10.9 billion in capital for a range of Reliance Industries (RIL) subsidiaries. Like the Adani Group, RIL is a conglomerate under the leadership of another of India’s powerful billionaires, Mukesh Ambani.
SOIs focused on two areas of RIL’s business: retail and telecom. ADIA, GIC, Mubadala and PIF featured prominently in fund-raising by Reliance Retail Ventures Ltd (RRVL) which links neighborhood stores for online deliveries of groceries, clothing, and electronic goods through its JioMart platform.
RIL also gained support from ADIA, Mubadala and PIF, which together bought a 5.4% stake in its telecoms’ unit Jio. Like RRVL, Jio is seeking to disrupt the market by aggressively under-cutting established rivals with a low-cost new fiber-to-the-home broadband service plus additional offers. Sovereign investment in telecoms infrastructure is supporting Jio’s relentless growth. ADIA and PIF invested US$ 506 million each to take a 51% stake in the Digital Fibre Infrastructure Trust (InvIT), and BCI and GIC teamed up with Brookfield to acquire a telecoms tower company from RIL for US$ 3.4 billion. With Jio the portfolio’s anchor tenant under a 30-year Master Services Agreement, the partners are looking to increase the number of towers by 30% to match the telecom operator’s growing subscriber base.
Mubadala has also taken a shine to the business empire of Ratan Tata, the industrialist whose trusts majority own Tata Sons, the holding company of the Tata Group conglomerate. In April, the Abu Dhabi fund joined with BlackRock to invest US$526 million in the Tata Power Company for a 10.53% stake. The capital raise is expected to fund Tata Power Renewable Energy's aggressive growth plans in the rooftop and electric vehicle charging space in India, with a renewables portfolio targeted at more than 20GW, from the current 4.9GW.
Meanwhile, the Mahindra family’s decarbonization efforts have won the attention of Canada’s OTPP. In September, the Mahindra Group and OTPP announced a strategic partnership to develop Indian renewables, signing binding agreements pursuant to which OTPP would acquire a 30% equity stake in Mahindra Susten Private Limited for US$300 million. The proposed transaction also envisages the setting up of an Infrastructure Investment Trust that will comprise renewable power assets seeded by Mahindra Susten with operational capacity of around 1.54GW.
Yet, the strongmen of India’s business world are not the only attraction and state-owned investors have also sought out partnerships with Indian government-backed initiatives. This week, Canadian PPFs CPP and OTPP have stumped up US$42 million each to boost the National Highways Infra Trust (NHIT), in which they each have a 25% stake. The NHIT is an Infrastructure Investment Trust (InvIT) sponsored by the National Highways Authority of India (NHAI), the Government of India’s nodal agency for national highway development. Proceeds from the capital raise will be utilized to acquire three additional road concessions from NHAI, giving NHIT a portfolio of eight toll roads with a total length of 636km and a concession period ranging between 20-30 years.
What’s certain is that deal origination is a complex and difficult task in the South Asian economy, which has a burdensome bureaucracy and a fractious political scene. While venture capital efforts have been steady to support the country’s vibrant entrepreneurial ecosystem, the main focus has been partnering with the big players – and that means working with India’s industrial royalty.