CPP Investments and OTPP Buy Half the Units in India's NHAI InvIT
Two international pension funds – Canadian Pension Plan Investment Board and Ontario Teachers’ Pension Plan - will be the anchor investors for recently launched Infrastructure Investment Trust (InvIT) of the National Highways Authority of India (NHAI).
Each will pick up 25 per cent equity. The NHAI will retain minimum of 15 per cent equity. The balance units were placed with a diversified set of domestic institutional investors comprising pension funds, insurance companies, mutual funds, banks and financial insitutions, the NHAI said in a press release.
"The total enterprise value of the initial portfolio of 5 roads was pegged at Rs.8011.52 crore. NHAI InvIT is funding that through debt of Rs 2,000 crore from State Bank of India, Axis Bank and Bank of Maharashtra. The balance is being funded by issuing units of Rs 6011.52 crore to international and domestic insitutional investors, and NHAI as Sponsor," the release said.
The InvIT, launched on October 29 and closed on November 2, is a private placement instrument for international and domestic institutional investors.
"The InvIT will initially have a portfolio of five operating toll roads with an aggregate length of 390 kilometers, with more roads planned to be added later. These roads are located across the states of Gujarat, Karnataka, Rajasthan and Telangana," the release said.
NHAI has granted new concessions of 30-years for these roads. In view of the long-term nature of the assets, the units of InvIT were placed with international and domestic institutional investors. The units have been issued under the private placement route under SEBI InvIT Regulations, 2014 at the upper valuation band of Rs.101 per unit. The units will be listed on NSE and BSE.
"More NHs will be added to the InvIT portfolio, as the long-term revenue-generating assets such as toll roads provide stable and long-term yields under the InvIT structure," Union Road Transport Minister Nitin Gadkari said tweeted.
As part of the monetisation programme announced by the government, NHAI plans to sell about 32 more operational road assets spanning 1,500 km as well as upcoming ToT (toll operate transfer) projects.
The Times of India also reports that according to Union Minister Nitin Gadkari, the NHAI has raised over Rs 5,000 crore through InvIT:
The National Highway Authority of India's first infrastructure investment trust has raised more than Rs 5,000 crore, Union minister Nitin Gadkari said on Wednesday.
Infrastructure Investment Trusts (InvITs) are instruments on the pattern of mutual funds, designed to pool money from investors and invest the amount in assets that will provide cash flows over a period of time.
"Under the National Monetisation Pipeline (NMP), which is based on 'Creation through Monetisation', the NHAI has launched its InvIT to monetise NH projects and has demonstrated a strong ability to attract a wide variety of sophisticated global investors.
"NHAI InvIT attracted two international pension funds, Canadian Pension Plan Investment Board and Ontario Teachers' Pension Plan Board, which along with diversified DIIs invested units worth more than Rs 5,000 cr in InvIT portfolio which has currently 5 National Highway," Gadkari in a series of tweets said.
The road transport and highways minister further said that subsequently, more national highways will be added to the InvIT portfolio, as the long-term revenue-generating assets such as toll roads provide stable and long-term yields under the InvIT structure.
NHAI in April had filed draft papers with markets regulator Sebi for floating an Infrastructure Investment Trust (InVIT) through which it had sought to raise Rs 5,100 crore.
In a statement, the Ministry of Road Transport and Highways (MoRTH) said NHAI InvIT attracted two international pension funds -- Canada Pension Plan Investment Board and Ontario Teachers' Pension Plan Board -- as anchor investors and they will hold 25 per cent of the units each.
"The balance units were placed with a diversified set of domestic institutional investors comprising pension funds, insurance companies, mutual funds, banks and financial institutions," it added.
According to the ministry, the InvIT will initially have a portfolio of five operating toll roads with an aggregate length of 390 kilometres, with more roads planned to be added later.
"These roads are located across the states of Gujarat, Karnataka, Rajasthan and Telangana. NHAI has granted new concessions of 30-years for these roads," it said.
While the total enterprise value of the initial portfolio of 5 roads was pegged at Rs 8,011.52 crore, the ministry said NHAI InvIT is funding that through debt of Rs 2,000 crore from State Bank of India, Axis Bank and Bank of Maharashtra.
"The balance is being funded by issuing units of Rs 6011.52 crore to international and domestic institutional investors, and NHAI as a sponsor," it said.
The ministry explained that because of the long-term nature of the assets, the units of InvIT were placed with international and domestic institutional investors.
"The units have been issued under the private placement route under SEBI InvIT Regulations, 2014 at the upper valuation band of Rs 101 per unit," the ministry said, adding that the units will be listed on NSE and BSE.
“We are pleased that NHAI InvIT has been able to garner funds from marquee international and domestic institutional investors to support the government's National Monetisation Pipeline.
"We welcome the two anchor investors - Canadian Pension Plan Investment Board and Ontario Teachers' Pension Plan Board, and other reputed domestic investors, into NHAI InvIT," MoRTH secretary and NHAI chairman Giridhar Aramane said.
The success of this InvIT will go a long way in achieving the Prime Minister's vision of developing world-class infrastructure in the country, he added.
InvIT as an instrument provides greater flexibility to investors and is expected to attract patient capital (for say 20-30 years) to the Indian highway market, as these investors are averse to construction risk and are interested in investment in assets that provide long-term stable returns.
NHAI has the largest share under the National Monetisation Pipeline as road assets worth Rs 1.60 lakh crore will be monetised over four years till FY25 under the NMP plan announced by Finance Minister Nirmala Sitharaman in August this year.
CPP Investments put out a press release stating it invested C$257 Million in India’s National Highways Infra Trust:
Canada Pension Plan Investment Board (CPP Investments) today announces the acquisition of 25% of the units in National Highways Infra Trust, an infrastructure investment trust (InvIT) sponsored by the National Highways Authority of India (NHAI), for INR 15,029 million (C$257 million).
The National Highways Infra Trust has been set up to acquire brownfield toll roads from NHAI, the Indian government agency responsible for developing, maintaining and managing national highways in India. The InvIT will initially be seeded with a portfolio of five brownfield operating toll roads, under 30-year concessions. The portfolio spans nearly 390 kilometers across four Indian states: Gujarat, Karnataka, Rajasthan and Telangana.
“We have been an active investor in India’s infrastructure sector since 2014. The opportunity to invest in National Highways Infra Trust allows us to deepen our commitment to India by deploying capital in a platform which will acquire future road projects across the country, ultimately delivering solid long-term returns for the CPP Fund,” said Scott Lawrence, Managing Director & Global Head of Infrastructure, CPP Investments.
“The pandemic has spurred an acceleration of the Indian government’s national infrastructure policies. We see multiple opportunities to participate in asset monetization to address India’s infrastructure investment requirements to support the country’s continued economic growth,” he added.
NHAI was set up in 1988 by an act of the Indian Parliament for the development, maintenance and management of national highways in India.
About CPP Investments
Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that manages the Fund in the best interest of the more than 20 million contributors and beneficiaries of the Canada Pension Plan. In order to build diversified portfolios of assets, investments are made around the world in public equities, private equities, real estate, infrastructure and fixed income. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At June 30, 2021, the Fund totalled C$519.6 billion. For more information, please visit www.cppinvestments.com or follow us on LinkedIn, Facebook or Twitter.
Ontario Teachers' Pension Plan also put out a press release that it will become a significant unitholder in National Highways Infra Trust in India:
Ontario Teachers’ Pension Plan Board (Ontario Teachers’) is pleased to announce that it has been allocated a 25% stake in National Highways Infra Trust (NHIT), an Infrastructure Investment Trust (InvIT) sponsored by the National Highways Authority of India (NHAI), which is the Government of India’s nodal agency for national highway development. Ontario Teachers’ has invested INR 15 billion / CAD 248 million for its stake.
NHAI as the Sponsor will retain at least 15% of the units in NHIT. The balance units were placed with a diversified set of domestic institutional investors comprising pension funds, insurance companies, mutual funds, banks and financial institutions. Proceeds from the subscription of units by investors will be paid to the NHAI as a concession fee to be utilized by NHAI for further development of road infrastructure in India.
NHIT owns, operates and maintains a portfolio of five toll roads in the Indian states of Gujarat, Rajasthan, Telangana and Karnataka spanning a total length of 390 km and a concession period of 30 years.
NHIT is part of Government of India’s National Monetisation Pipeline announced earlier this year and has significant potential to scale up in the future with further roads being offered by NHAI to the InvIT over the next few years.
“The investment into NHIT demonstrates Ontario Teachers’ focus on investing in high-quality Indian infrastructure and acting as a partner to the Government of India in its plan to monetize core infrastructure assets,” said Bruce Crane, Managing Director, Infrastructure & Natural Resources, Asia Pacific, Ontario Teachers’. “This investment is in line with our strategy to substantially grow investments in core infrastructure assets globally and builds on our expertise investing in toll roads around the world.”
“As a long-term investor, we are encouraged by the attractive opportunities India presents to us across different asset classes. We look forward to building new partnerships and growing our exposure to the country in the coming years,” said Ben Chan, Senior Managing Director, Asia Pacific, Ontario Teachers’.
This investment is Ontario Teachers’ second investment into the infrastructure sector in India. Ontario Teachers’ is also an anchor investor in the National Investment and Infrastructure Fund (NIIF)
Ambit Private Limited acted as financial advisor to Ontario Teachers’.
About National Highways Authority of India
NHAI is an autonomous authority of the Government of India (GoI) under the Ministry of Road Transport and Highways constituted on June 15, 1989 by an Act of the Indian Parliament titled - The National Highways Authority of India Act, 1988. It plays a strategic role in GoI initiatives for growth & development of the Indian highway sector, and acts as the nodal authority for implementation of National Highway projects developed through public or private agencies.
About Ontario Teachers' Pension Plan
Ontario Teachers’ Pension Plan Board (Ontario Teachers') is the administrator of Canada’s largest single-profession pension plan, with CAD 227.7 billion in net assets (all figures at June 30, 2021 unless noted). It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an annual total-fund net return of 9.6% since the plan's founding in 1990. Ontario Teachers' is an independent organization headquartered in Toronto. Its Asia-Pacific region offices are located in Hong Kong and Singapore, and its Europe, Middle East & Africa region office is in London. The defined-benefit plan, which is fully funded as at January 1, 2021, invests and administers the pensions of the province of Ontario's 331,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.
How about that? Two of the largest and best Canadian pensions are anchor investors in India’s National Highways Infra Trust (NHIT).
This investment is Ontario Teachers’ second investment into the infrastructure sector in India.
As Scott Lawrence, Managing Director & Global Head of Infrastructure at CPP Investments states in the press release, they have been an active investor in India’s infrastructure sector since 2014.
The National Highways Infra Trust is a fantastic platform which will acquire future road projects across India, delivering solid long-term returns for both these Canadian pension behemoths.
These toll roads provide stable revenue streams over the long run. The concessions span 30 years and even though the toll fees are regulated, they typically rise with economic growth and have an inflation component too to protect investors.
That's why investors like these assets, they're extremely long duration assets and even though they are riskier than real return bonds, investors are well compensated for taking this risk.
India is growing, the middle class is growing, more people are driving cars, paying tolls, so it makes great sense to invest in the National Highways Infra Trust (NHIT).
And there's more coming down the pipeline. From the first article above:
As part of the monetisation programme announced by the government, NHAI plans to sell about 32 more operational road assets spanning 1,500 km as well as upcoming ToT (toll operate transfer) projects.
I wonder how many other large Canadian pensions will take part in the ongoing monetization program.
Recall, in April 2019, I discussed how PSP Investments' infrastructure investment company Roadis and India's National Investment and Infrastructure Fund (NIIF) created a platform to invest $2 billion in road projects in India.
A friend of mine, an expert on toll roads, shared this with me back then:
"In developed countries, most families already have one or two cars. Your toll roads and other infrastructure projects typically grow with GDP, so your gross return will be GDP growth + CPI inflation. In developing countries like India where demographics are favorable, industrialization is taking place and lots of people still don't own cars, you can still collect very nice returns on toll roads. You will get GDP growth + CPI inflation + increases from tolls + as more people begin buying one or two cars, it will generate more traffic on these highways and profits will increase commensurately. It's a long-term project in a growing economy with great demographics."
But he also warned: "However, sponsors tend to be too optimistic in their financial models and raise tolls too quickly (i.e charging more than the economy can bear). This usually has a negative impact on demand."
I'm pretty confident the National Highways Authority of India (NHAI) is aware of this and they will proceed cautiously and won't raise tolls too quickly.
In the meantime, India's growth and favorable demographics will continue to attract international institutional investors who are looking to earn decent long-term returns.
Below, learn more about the National Highways Authority of India (NHAI) in this clip even if it's dated (2014).
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