Piramal Enterprises Ltd has tied up with Dutch pension fund APG Asset Management to invest $1 billion in Indian infrastructure companies over three years, in a move that would help indebted firms access funds to complete projects.
A sluggish economy and stalled bureaucratic decision-making for the past two years thwarted capital investment and dented earnings, making it tough for infrastructure companies to raise funds and launch or complete road and power projects.
Piramal, controlled by Indian billionaire Ajay Piramal, and APG will invest in local infrastructure companies through rupee-denominated mezzanine instruments, the two sides said in a statement on Wednesday.
Mezzanine debt, commonly used by private equity firms, comes between senior debt and equities.
Piramal and APG have each initially committed $375 million for investments under the alliance, the companies said.
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.
"This was always the missing element in the capital stack," Jayesh Desai, co-head of structured investment group at Piramal told Reuters, referring to long-term capital to fund infrastructure building in Asia's third-largest economy.
India has ambitious plans to fix its creaky infrastructure with an aim to spend $1 trillion on the sector by 2017, half from private sources.
"We thought that there was a clear-cut market need for long-term money, which would basically not be permanent equity," he said. "We could look at projects also but largely the idea is to look at companies."
Desai said APG had been a investor in Indian infrastructure through its funds. The alliance with Piramal marks the Dutch pension fund's first direct investment in domestic infrastructure companies, he said.
Led by one of India's 50 richest people, Piramal has evolved from a textiles manufacturer in the mid-1980s into a group with interests in pharmaceuticals, glass, financial services and real estate.
Macquarie Capital acted as the sole financial advisor for the Piramal and APG deal.