The Caisse de dépôt et placement du Québec is heightening its focus on India, charting investment growth prospects that go beyond what the pension fund sees in other emerging or developed economies.
After establishing an office in New Delhi earlier this year, the Caisse has set its sights on building its stake in India's businesses and infrastructure. Two deals in the past month will bring its total investment up to $3-billion in the country – and that's just the beginning.
The Caisse is preparing to announce more partnerships in the weeks to come, chief executive officer Michael Sabia said on the phone from Mumbai. He said India is a "bright spot" in an otherwise gloomy global economic scene.
India's central bank made an unexpected move to cut its key interest rate by 25 basis points on Tuesday, citing concerns about global economic stability and other monetary policy issues.
However, the country's economy is still growing at one of the swiftest rates in the world. India's economic growth rate slowed to 7.1 per cent the three months until June, after reaching 7.9 per cent in the previous quarter. The Caisse is looking to make more investments in renewable energy that will power growing cities, real estate that can house an expanding middle class and transportation and logistics to connect people and move goods.
These plans go hand in hand with the Caisse's two most recent investments in India over the past month – partnership deals tied to the theme of Indian "stressed assets." These are non-performing loans that have built up in the Indian banking system and are causing financial stress. Restructuring these struggling debts can be a long process for lenders and investors, but more banks are preparing to deal with the issue now that regulators have introduced several guidelines to allow the assets to be sold off.
On Monday, the Caisse said it would partner with, and invest in, Mumbai-based financial services company Edelweiss Group to invest up to $700-million (U.S.) over the next four years in private debts and restructuring stressed assets in different industries.
Mr. Sabia said the Caisse was drawn to Edelweiss for its operational expertise, meaning that the firm would be able to help rebuild struggling medium-sized businesses after navigating them through the financial restructuring process, which can involve many lenders and take more than a year.
It was the second investment in stressed assets for the Caisse, which in September said would invest in Indian power projects as part of Resurgent Power Ventures, a platform created by local heavyweights Tata Power and ICICI Venture. The Caisse and other large global investors plan to raise up to $850-million initially, to be invested over a couple of years.
The power investment was driven in part by the government's initiative to swap electricity for other fuels, but also by the opportunity to bring stranded assets back to the grid.
Several power infrastructure projects in India have stalled in the wake of the financial crisis not only because of economic changes, but also because of policy decision hold-ups and mismanagement.
On the topic of governance, Mr. Sabia said at the Federation of Indian Chambers of Commerce and Industry capital markets conference on Tuesday that more transparency and sound governance are required of both the private and public sectors to boost investor confidence and long-term growth.
As India steadily makes its reforms, Mr. Sabia said, the Caisse will continue pursuing investments in the region. But to avoid taking on too much risk without compelling rewards, it has not set a target amount of dollars to spend in India, or a firm timeline within which to source deals.