Canada Pension to Buy Stake in Indian Engineering Firm

Canada’s biggest pension fund is investing in Indian infrastructure assets after Prime Minister Narendra Modi vowed to build 100 new cities and revive growth in the $1.8 trillion economy.

Canada Pension Plan Investment Board said yesterday that it will pay $166 million for a stake in a unit of Larsen & Toubro Ltd., India’s largest engineering company. Investing in infrastructure will be core to the fund’s growth in the South Asian country, Andre Bourbonnais, senior vice president of private investments, said in an interview.

“Investors are confident of the long-term economic growth potential in India,” Ambareesh Baliga, managing partner of global wealth management at Mumbai-based Edelweiss Financial Services Ltd., said by phone. “Companies with proven track record and good balance sheets will get the maximum advantage. L&T is right there at the top.”

Modi has promised high-speed trains, low-cost airports that connect smaller towns and simple rules for industrial projects to help spur economic growth from near the slowest pace in a decade. Larsen & Toubro has surged 57 percent this year, the best performance on the S&P BSE Sensex index.

Canada Pension is committed to investing an equal amount for an additional stake in L&T Infrastructure Development Project Ltd. in 12 months after the initial purchase, according to a statement issued yesterday. L&T Infrastructure operates 19 toll roads, a power transmission line and a metro in Hyderabad.

Direct Investment

The L&T stake is Canada Pension’s first direct investment in India’s infrastructure and the latest push in its efforts to grow in the South Asian country. In February, the Toronto-based fund announced it had set up a $500 million fund with Piramal Enterprises Ltd., one of India’s top diversified companies, to finance home projects in the country.

In November, the pension fund contributed $200 million to an alliance with the Shapoorji Group to buy office buildings in major Indian cities.

Bourbonnais said finding the right partners is key to Canada Pension’s expansion in India, which poses its unique challenges, including being “fairly bureaucratic.”

“In emerging markets, the selection of the partner is absolutely key,” he said.

Bourbonnais said the strongest electoral mandate for a government in 30 years will provide the political stability needed for additional investment. The partnership with L&T will allow Canada Pension to leverage this investment into new ones.

“We can use the joint venture to buy other toll road assets,” he said.

Before it's here, it's on the Bloomberg Terminal.