Wednesday, October 28, 2015

CPPIB Goes Bollywood?

Barbara Shecter of the National Post reports, CPPIB adds Mumbai to list of global offices, commits to stake in Cablevision:
The Canada Pension Plan Investment Board has opened an office in Mumbai to support and expand on $2 billion of investments made in India since 2010.

The new Mumbai office joins a list of seven international hubs including London, Hong Kong, New York and Sao Paulo. As with the others, the office in India will allow the pension giant’s management team to develop local expertise and partnerships, and will provide access to investment opportunities that “may not otherwise have been available,” said chief executive Mark Wiseman.

He noted that Canada’s largest pension has already made investments in the country in segments including infrastructure, real estate and financial services.

These include a 3.9 per cent stake in Kotak Mahindra Bank, India’s third-largest private sector bank by market capitalization, and a US$332-million investment in L&T Infrastructure Development Projects, the unlisted subsidiary of India’s largest engineering and construction company.

On Tuesday, the same day the new Mumbai office was announced, CPPIB issued a separate announcement saying it would take a US$400-million stake in U.S. cable operator Cablevision Systems Corp.

Toronto-based CPPIB is teaming up with a group of investors, including funds advised by BC Partners and BC European Capital IX, to provide 30 per cent of the equity in Altice’s proposed acquisition of Cablevision, one of the largest cable operators in the United States with millions of customers in greater New York.

The transaction is expected to close in the first half of 2016, subject to regulatory approvals.
Euan Rocha of Reuters also reports, Canada's CPPIB opens office in India to scout for opportunities:
The Canada Pension Plan Investment Board, one of the country's largest pension fund managers, opened an office in Mumbai on Tuesday as it scouts for investment opportunities on the Indian subcontinent.

CPPIB, which has already committed to invest more than $2 billion in India, sees its long investment horizon aligning with the financing needs of India's economy.

The Toronto-based fund owns a nearly 4 percent stake in Kotak Mahindra Bank, one of the largest private sector banks in India. It has also committed to investments in infrastructure projects in India, office buildings, and to providing structured debt financing to residential projects in major Indian cities.

"The opening of an office in Mumbai allows CPPIB to develop local expertise, build important partnerships and access investment opportunities that may not otherwise have been available," CPPIB head Mark Wiseman said in a statement.
You can read CPPIB's full press release on opening an office in India here. This is all part of CPPIB's long-term strategy to invest in public and private markets in emerging markets.

Why invest in India? There are plenty of reasons. In June 2010, Goldman Sachs Asset Management put out a nice little white paper, India Revisited, which made a solid case for investing in the country based on an advantageous demographic profile, a growing middle class, a healthy financial system, low levels of private and corporate leverage, conservative regulations and a domestically driven economy which insulated India from the worst effects of the 2008 global economic crisis.

Of course, there are plenty of pitfalls investing in India too. According to a 2008 NRI guide going over the advantages and disadvantages of investing in India, corruption is rampant in that country:
India, despite its enormous manpower, is facing a shortage of qualified skilled professionals due to lack of adequate public education system. The wage rates, hence, are going higher and higher eroding the cost advantage that has served India for a decade now.

Infrastructure is another field where India has to pull up its socks. Foreign investors, in their day-to-day course of business deal with PIO. But when these foreign investors come to India, they witness inadequate and not up-to-the-mark airports, seaports, roads, power grids, communication system and facilities, health care and education.

If India has to become a superpower, her government has to work with full commitment and dedication in all the fields mentioned above. Indirection, uncertainty and revisiting settled issues eternally characterise business negotiations in India.

Corruption is another huge predicament that has to be minimised as much as possible if India is to become an apple of the investors’ eyes. The Indian courts have huge backlog of more than 27 million cases, with many cases taking more than a decade to get solved! Unfriendly labour laws, difficulty in getting patent rights, and various other legal and ethical challenges add to India’s affliction. What officials put forth is not exactly how the true picture is.

India, no doubt, is a tough place to do business. But all said and done, we cannot deny the fact that India is a strong contender for the post of ‘economic superpower of the future’ and its strategic location works in its favour abundantly. We at believe that the ginnie has been let out of the bottle and soon the world would realize the potential of the Indian financial markets: including both stock markets and mutual funds. And if the challenges are taken care of, then it is a heavenly abode for all investors.
The ginnie has been let out of the bottle which is why CPPIB and other large global investors like Norway's massive sovereign wealth fund are investing more in India.

In my opinion, however, the real opportunities in India lie in private, not public markets which gives CPPIB a big advantage over other investors. Anyone can invest in iShares MSCI India (INDA) which pretty much tracks the iShares MSCI Emerging Markets ETF (EEM). But a large investor like CPPIB can invest in real estate, infrastructure and private equity deals in that country, opening the door to a lot more lucrative investment opportunities.

Does CPPIB need to open up offices in various regions of the world? There, I'm a little more skeptical. CPPIB, Ontario Teachers and others love opening up offices to have "boots on the ground" but I prefer PSP's approach of partnering up with the right partners in various countries to find the very best opportunities in public and private markets (I always ask myself a simple question: Do we really need to open up offices around the world or are we better off sourcing opportunities through partners?).

It's also worth noting that investing in emerging markets via public or private markets carries a whole set of unique risks, including more volatility and currency risk.

Last October, I questioned CPPIB's risky bet in Brazil and pointed out that while this makes sense over the long run, the fund will deal with volatility and huge currency losses over the short run (the Brazilian economy has gotten clobbered as China's growth and demand for commodities has slowed and even though CPPIB doesn't need to sell its Brazilian assets, their valuations are not immune to public market and currency woes).

One area where CPPIB can help India is in bolstering its antiquated pension system which ranks dead last in Mercer's global ranking of pension systems.

As far as CPPIB's cable deal, you can read its press release here. It basically partnered up with BC Partners, one of the best private equity funds in the world, to co-invest alongside it and join forces with Altice, in the latter's acquisition of Cablevision:
Altice, the European cable and telecoms group which last month announced it will buy US cable television company Cablevision for $17.7bn including debt, said on Tuesday that the two would take a 30 per cent stake in the company for around $1bn.

Altice, known for being acquisitive, has previously bought rivals in France, the US and Israel. Following the announcement of the Cablevision deal it announced a new equity capital raising exercise of around €1.8bn.

From the announcement:
Altice N.V. (Euronext: ATC, ATCB) today announced that funds advised by BC Partners ("BCP") and Canada Pension Plan Investment Board ("CPPIB") have entered into a definitive agreement to acquire 30% of the equity of Cablevision Systems Corporation (NYSE: CVC) (for approximately $1.0 billion).

Together with the recent Cablevision debt financing and the Altice equity issuance, the acquisition of Cablevision is fully funded.
The cable wars are heating up everywhere, especially in the U.S., and this is a good long term deal as long as they didn't overpay for it and get regulatory approval.

Below, Martin Sorrell, CEO of WPP, says that while he remains an unabashed bull on BRICS, there’s reason to be particularly positive on India.

Also, David Zaslav, Discovery Communications CEO; Barry Diller, IAC/InterActiveCorp and Expedia, Inc. Chairman and Senior Executive; and Les Moonves, CBS chairman & CEO, discuss viewing television a la carte. They also weighed in on the relationship between content and distribution providers. This was a fascinating discussion with media titans.

Lastly, economist and former Labor Secretary, Robert Reich, explains why your cable bill is so high. Reich is right, there's not enough competition in cable and internet service providers and that's all because of  politics. You might have noticed your Netflix rate creeping up. This is only the beginning. Get ready for more price increases in this industry which is dominated by a few key players.

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