Canada Pension Plan may invest Rs 2,000 crore in L&T’s infrastructure arm
Rs 1000 crore will be invested in the wholly owned infrastructure development arm of engineering major Larsen & Toubro, L&T Infrastructure Development Projects (L&T IDPL) ,by Canada Pension Plan Investment Board (CPPIB) .
L&T is also looking at a second tranche capital infusion into the company which is of Rs 1000 crore , which is expected to come from CPPIB ,12-18 months after the first round but sources in the know said there are at least two more entitities willing to come on board. They include another Canadian pension fund entity Caisse de depot et placement du Quebec (CDPQ) and Omani sovereign wealth fund State General Reserve Fund (SGRF).
Although details of the deal are still not disclosed due to ongoing discussions. Sources said, the Rs 2000 crore capital infusion will lead to a 10-15 per cent stake dilution in the company.The company’s
Equity valuation is around Rs 8500 -Rs 9000 crore.
Chief Executive of L&TIDPL, KV Venkatesh did not want to make a statement. “At the moment we are in discussion with one investor. We have taken an enabling approval from FIPB. The details on valuation, stake dilution are still being worked out,” ET has been told by R Shankar Raman, Group CFO L&T, That mails sent to SGRF and CDPQ did not get a response till the time of going to press.
This investment will also temporarily take the pressure off from the company’s strategy to list 6 of its operational toll road projects through a business trust in Singapore, as said by Analysts. The process is yet to be launched, although the company had mandated two global investment banks Standard Chartered and Nomura.
A senior capital goods analyst said, “Even though it is not impossible and the company has maintained both are independent, the underlying value is the cash flow from the projects. So L&T may want to give it some time before revisiting the overseas listing. They may not want to pursue two things for the same assets at the same time.”
Though Raman feels both processes are mutually restricted. “One will not delay or fast forward the other,” he added.
Last Friday, the foreign investment promotion board (FIPB) cleared CPPIB’s investment decision to invest the first Rs 1000 crore, using a pool of different instruments such as fresh issuance of equity shares, compulsorily convertible preference shares (CCPS), compulsorily convertible debentures (CCD), by means of a Singapore arm. L&TIDPL had already taken a pre-emptive clearance without naming the strategic investor, in December.
India’s creaking infrastructure story, which in recent times has been buffeted by regulatory deadlock and political interventions due to stress of this investment is now growing interest of Canadian pension players. CPPIB, which manages $201.5 billion in funds, recently entered into a strategic alliance with Piramal Enterprises for providing structured debt financing to residential projects across India’s major urban centres. Piramal and CPPIB have each initially committed $250 million to the agreement.
Morgan Stanley had been mandated by L&T in June 2012, to help them raise capital for a minority stake in the company from financial sponsors after plans to list the company did not fructify. Long term infrastructure sector or several large sovereign funds focused on private equity investors including Khazannah of Malaysia; Mubadala of Saudi Arabia was approached till the discussions with Canadians firmed up.
Stock markets encourage the developments, parent L&T’s stock was up 2.85 per cent to close the day at Rs 1081.60/share in an unstable market.
L&T IDPL currently handles a portfolio of infrastructure which includes 19 road projects, 3 ports and a metro rail project and assets worth around Rs 45,000 crore. Among which Hyderabad Metro project of Rs 16,400-crore is one of the most ambitious build operate and transfer (BOT) asset.
The company has also aligned with Tata Steel for an equal venture for the Rs 3000 crore Dhamra Port with debt equity of 2:1 which it is also looking to monetise by exiting. It is amongst the top two road developer in the country. The total project cost of all the L&TIDPL projects stood at is Rs 64,700 crore, as on December 2013, with Rs 6700 crore equity already invested in them. At the end of Q3 of FY14, the company is expected to have close to Rs 16,000 crore of debt.
Equity infusion was much needed by the co as it has large debt in its books. Although, they are all housed under various project level SPVs and have no recourse to L&T, but on a consolidated level, the leverage impacts L&T’s credit ratings ,said by an official. For example The Hyderabad Metro alone will need close to Rs 12,000 crore of 10-year project debt.
Source: The Economic Times
build operate and transfer, Caisse de depot et placement du Quebec, Canada Pension Plan, Canada Pension Plan Investment Board (CPPIB), compulsorily convertible debentures, compulsorily convertible preference shares, Foreign Investment Promotion Board, India, Khazannah of Malaysia, KV Venkatesh, L&T’s infrastructure, Morgan Stanley, Mubadala of Saudi Arabia, Nomura, Omani sovereign wealth fund State General Reserve Fund, Piramal Enterprises, Raman, Singapore, Standard Chartered, Tata Steel
