n FRONT STORY INDIA
Brookfield, Blackstone eye IPOs
Pipeline trust and first REIT plan to sell bonds and shares
Infrastructure and property developers,
including Brookfield and Blackstone, are
turning to the Indian capital markets to
raise money through listed investment
trusts, despite rising interest rates and a
lacklustre response to earlier listings.
Canada’s BROOKFIELD ASSET MANAGEMENT,
which owns several infrastructure and real
estate assets in India, is in talks with
investors to list an Indian gas pipeline
through an infrastructure investment trust
(InvIT).The Brookfield-backed InvIT is looking to
raise a total of Rs130bn (US$1.8bn), split
equally between debt and equity, to fund
the acquisition of a gas pipeline from
Mukesh Ambani’s East West Pipeline,
earlier known as Reliance Gas
Transportation Infrastructure, under a long-
term take-or-pay contract, according to
people familiar with the plans.
The InvIT is planning to raise up to
Rs65bn from bonds and a similar amount of
equity through a private placement of units,
the people said. It is currently hiring banks
to arrange the offering.
Separately, EMBASSY OFFICE PARKS REIT, which
is backed by India’s Embassy Group and US
private equity firm Blackstone, is planning
to file a draft prospectus for an IPO of about
US$1bn later this month, people with
knowledge of the transaction have said.
The Embassy trust, which would become
India’s first listed REIT, is also eyeing
Rs35bn from a three-year bond issue,
according to debt bankers. No details were
available on the likely coupon range.
Brookfield declined to comment. Reliance
Industries, also owned by Ambani, did not
respond to emailed questions about its
pipeline deal with Brookfield.
Embassy officials refused to comment on
the company’s financing plans. A Blackstonespokesperson did not reply to a request for
comment. Blackstone is buying a 55% stake
in Thomson Reuters’ Financial & Risk unit,
which includes IFR.REGULATORY RETHINK
The planned capital raisings come after
India’s first listed infrastructure trusts
performed poorly, dampening interest in
the format. A regulatory rethink, however,
appears to have revived appetite among
potential issuers.
Last week, INDIA GRID TRUST INVIT became the
first such trust to tap the bond market,
taking advantage of a rule change last
September allowing InvITs and REITs to sell
bonds to fund further acquisitions.
Any debt raised has to be within the
overall 49% gearing limit of an InvIT/REIT
and any debt issuance above 25% of the asset
value needs the approval of unit-holders.
India Grid’s InvIT sold Rs2.5bn of 10-year
bonds at 8.6% to finance ongoing
acquisitions and for general corporate
purposes. However, it fell short of its Rs15bn
target as the issuer was not willing to pay
the high rates demanded by investors.
The bonds for the Brookfield and
Blackstone trusts will be the largest bond
offerings by an InvIT or REIT so far.
While the exact structure of the
Brookfield pipeline deal is not yet known,
the InvIT is expected to issue five-year bonds
at a yield of around 9.25%–9.35%, according
to the bankers.
Embassy Office Parks REIT, which will
contain office assets in Bengaluru, Mumbai
and Pune, has been trying to launch an IPO
for more than three years. It wants to offer a
dividend yield at or below the 10-year
government of India bond, in contrast with
typical InvIT IPOs in India that tend to offer
a yield above the risk-free benchmark. The
10-year Indian government security was
trading at a yield of about 8.06% on
Thursday.
REITs and InvITs are taking to the bond
market now on concerns that interest rates
will rise further. Raising debt can help them
to optimise their capital structures and
increase returns for equity investors.
“Once the debt is repaid, the asset should
generate additional returns for theinvestors,” said Bhairav Dalal, partner for
tax and regulatory at PwC India. “The other
reasons for raising debt could be to limit the
overall dilution or to refinance an expensive
debt.”NEW TRIPLE A OPPORTUNITY
InvITs and REITs issuing bonds is a welcome
development for the bond market. The
Brookfield-backed InvIT bond is expected to
win a local AAA rating.
“We will evaluate the bonds for
diversification and yield pick-up after
understanding the contours of the deal,”
said Lakshmi Iyer, chief investment officer
of debt and head of products at Kotak
Mutual Fund.
“While the bond market sentiment is bad
because of the rise in yields, there will be
takers for a AAA rated InvIT bond because it
is a new product, although there could be
illiquidity risk.”
If the mammoth Rs65bn bond issue by
Brookfield sails through, “more InVITs and
REITs will come and raise money from the
bond market”, said Iyer.As more infrastructure and property
assets are completed and begin generating
cash, they could be injected into existing
trusts or new vehicles.
“We could see three to four InvIT
issuances a year,” said an executive from a
domestic law firm.
India has yet to see its first REIT listing,
but there are hopes that the debut issue
could be coming soon.
“We have already seen some traction on
InvITs and hopefully before the end of the
year India should witness its first REIT,” said
PwC’s Dalal.
Krishna Merchant, S AnuradhaInternational Financing Review September 8 2018 81EQUITIES
Australia 82 China 82 India 84 Philippines 85 Singapore 85 Denmark 86
Israel 87 Switzerland 88 UK 88 United States 91 Canada 96 Structured Equity 96“Once the debt is repaid,
the asset should generate
additional returns for the
investors”“We have already seen
some traction on InvITs and
hopefully before the end of the
year India should witness its
first REIT”10 Equities and SE 2250 p81-98.indd 81 07/09/2018 20:19:31