Canada’s CDPQ inks pact with Edelweiss to invest $750 mn in Indian stressed assets


New Delhi: Caisse de Dépôt et Placement du Québec (CDPQ), the second-largest pension fund in Canada, has inked a long-term partnership with Edelweiss Financial Service Ltd to invest approximately Rs.5,000 crore (nearly $750 million) in stressed assets and specialized corporate credit in India, over the next four years.

As per the agreement, the Canadian pension fund will make annual investments of Rs.1,250 crore in stressed assets and specialized corporate credit, totaling to around Rs.5,000 crore over the next four-year period. This will make it the single-largest investment by an institutional investor in this sector.

CDPQ has also agreed to acquire a 20% equity stake in Edelweiss Asset Reconstruction Co. (EARC).

This will allow EARC to access CPDQ’s funding and invest in new stressed asset companies it acquires from banks and also provide necessary capital in assets that will be available on EARC’s book.

The other shareholders in EARC will be a Scandinavian insurance company with a 4% stake, 16% will be held by Indian investors and the balance by the Edelweiss Group.

The Canadian investor will be part of EARC’s board and also on Edelweiss Group Investment committee that overseas private debt and stressed asset investments.

The acquisition and shareholding as mentioned above are subject to standard closing conditions, completion of legal documentation and approval by regulatory authorities, it said in the statement.

The proposed investment will be carried out by Edelweiss ARC and through different Edelweiss funds to acquire non-performing loans from Indian banks and investments in private debt of growing Indian companies, the statement said. EARC recently set up a consulting team providing value-adds and operational improvements to industrial businesses to enhance their productivity and contribution to the Indian economy.

“By becoming a partner of Edelweiss, CDPQ is looking to support its growth for many years to come and, ultimately, participate in the emergence of new innovative and successful businesses in India,” said Michael Sabia, president and chief executive officer at CDPQ.

“We believe India stands out as an exceptional country to invest in, given the scope and quality of investment opportunity, and the current government’s intention to pursue essential economic reforms,” he added.

Also, as per the partnership, the Canadian pension fund will sit on EARC’s board of directors and on the Edelweiss Group investment committee to oversee private debt and stressed assets investments.

Incorporated in 1965, CDPQ is one of the largest institutional fund managers in Canada and North America. A leading PE investor in Canada, it is also one of the 10 largest real estate asset managers in the world.

CDPQ opened CDPQ India, its New Delhi-based office, in March 2016. Anita Marangoly George was appointed as the managing director, South Asia, with the mandate of identifying the best investment opportunities in the South Asian markets.

CDPQ’s entry into India follows that of its larger peer Canada Pension Plan Investment Board (CPPIB), which has already committed substantial funds to the Indian infrastructure sector through an investment of Rs.2,000 crore in Larsen and Toubro Ltd’s subsidiary L&T Infrastructure Development Projects Ltd (IDPL). CPPIB opened its investment office in India in October 2015.

At present, CPPIB owns a 3.9% stake in Kotak Mahindra Bank. The Canadian pension fund has also made $332 investment in L&T IDPL and a $300 million investment commitment with Renuka Ramnath’s Multiples Alternate Asset Management. It also has a $200 million joint venture with Shapoorji Pallonji.

In June this year, another Canadian pension fund PSP Investments expanded its reach in India with the acquisition of four toll roads totalling 710km as part of a global transaction with Spanish infrastructure company Grupo Isolux Corsan. Prior to that, PSP had agreed to buy a 49% stake in the electricity generation, transmission and distribution business of Anil Ambani’s Reliance Infrastructure Ltd in Mumbai and adjoining areas.

In October, Mint had reported that Canadian Pension funds including CDPQ and PSP Investments were looking to invest in the Indian infrastructure sector and have started scouting for assets.

Global pension funds and sovereign wealth funds may invest up to $50 billion in the sector over the next five years, said a March report by investment bank Ambit Corporate Finance.

In July, Edelweiss Financial Services said that it plans to launch a distressed asset fund with a corpus ranging between $750 million and $1 billion, joining a raft of potential investors in troubled corporate assets that are up for sale.

It will be one of the largest fund-raises attempted by an Indian financial services firm to invest in distressed assets. The fund will work closely with Edelweiss’s asset reconstruction company (ARC), led by Sibi Antony. With around Rs.30,000 crore in assets under management, EARC has been one of the most active ARCs in recent times.

On 5 July, Mint reported that Edelweiss ARC had acquired loans worth Rs.1,000-1,500 crore of Essar Steel Ltd from ICICI Bank Ltd.