'India has a good pipeline of projects'
Dr. M.S. Kapadia
— Nick van Gelder, Executive Director, Macquarie, and
Head, Macquarie Capital Funds - Asia & Middle East
Macquarie of Australia is the largest private owner of
infrastructure assets in the world, with 109 assets across 25 countries. It
manages 31 funds with equity under management of over $41 billion. Recently,
Macquarie announced its plans to launch an infrastructure fund in India. Nick
van Gelder speaks to Venugopal Pillai on Macquarie's plans and
outlook for India.
The recent $2 billion India fund where Macquarie is a
co-investor is Macquarie's first dedicated India fund. What are your future
Macquarie, along with the State Bank of India, announced its intention to raise
a $2 billion fund in April this year. It is scheduled to launch in the second
quarter of 2008. Macquarie is open to looking at a range of opportunities but it
would be premature to comment on other possible funds.
We believe $2 billion is a fair and reasonable size that reflects well the
infrastructure investment opportunities, the projects identified for
development, and the level of investor demand we are seeing in India today.
Going forward, however, I think you could expect to see us raising more capital
than just the headline figure. Through this fund we expect to be reviewing or
competing in every significant infrastructure investment opportunity in India
over the next decade.
Which sectors apart from infrastructure will Macquarie look at in India?
Macquarie's advisory business in India provides a wide range of financial
services to top-tier Indian clients including traditional mergers and
acquisitions, principle and fund raising transactions. Macquarie is a full
service corporate advisor in India across a range of sectors including
infrastructure, resources, industrials, technology, telecom and media.
Macquarie also offers institutional equity sales and trading, derivatives sales
and trading, equity research, equity capital markets, corporate advisory, funds
management, real estate and wealth management services in India.
What is Macquarie's outlook on renewable energy sector?
The Indian government has the only ministry of new and renewable energy in the
world, which shows that the government considers renewable energy as a
significant part of developing infrastructure and the power sector within India.
With the growing population and the corresponding increase in power usage,
renewable power solutions are in high demand in India.
The renewable energy sector is dominated by the exponential growth of wind farm
development, which is gaining increasing interest from international investors.
We expect wind to dominate renewable energy in India in the short term with
other technologies such as solar and biomass becoming more prominent in the
medium to longer term.
How does the investment in India compare with that in other emerging
economies in which Macquarie is involved?
Developing countries whose economies are in a transitional phase can be subject
to a degree of instability. However, unlike other emerging markets where there
is a greater risk of adverse effects resulting from political, economic and
social factors, India has developed a regulatory framework that mitigates many
of the risks associated with government policy, taxation and the legal system in
an emerging market. India has also developed model concession agreements and,
unlike other emerging markets, has a good pipeline of projects.
Another difference between India and other emerging markets is that in India the
population generally expects to pay for the use of infrastructure. The main
users of infrastructure in India are the middle classes and, as their disposable
income and per capita wealth grows, they have increased capacity and willingness
to pay for services. We expect more than 65 per cent of the Indian population to
be of working age by 2025. That activity will create more wealth and more
capacity to pay for infrastructure.
India represents an exciting opportunity for the global investment market. India
is now the world's 12th largest economy, with forecast 2008 GDP of approximately
$1.2 trillion. GDP is forecast by some commentators to surpass Japan by 2032 to
become the world's third largest economy behind the US and China.
What are the most important factors that merit India's inclusion in
Macquarie's global portfolio?
The infrastructure opportunities in India are tremendous. Importantly, the
government has also opened the door to private involvement in the provision of
infrastructure. It has been estimated that India will require almost $500
billion in private sector equity investment in infrastructure development over
the next five years.
The opportunity is underpinned by numerous observable demographic, economic and
political characteristics of the Indian market. These include:
u A favourable Indian
demographic profile where by the year 2025 the median age of India's population
will be considerably lower than other major economies such as the US, UK and
Germany. This "demographic dividend" is expected to drive a substantial increase
in labour supply, strong growth in the Indian population's savings capacity,
increased capital for domestic investment and, ultimately, enhanced economic
growth prospects for the economy as a whole.
u India is the world's
largest democracy by population, with a well established parliamentary system
and independent executive, legislative and judicial branches of government. This
relatively stable democratic environment is considered highly favourable from an
international investor's perspective.
u India's domestic
consumption is expected to continue its strong upward trend as the middle class
grows. Some estimates suggest that the middle class will grow by over 10 times
its 2005 level to reach 583 million by 2025. The accompanying increase in the
wealth of the Indian population will drive a proportional shift in spending
patterns away from basic necessities towards discretionary consumption items.
This shift represents a significant potential for further economic growth.
Besides funding infrastructure projects, what is Macquarie Group's outlook
for developing infrastructure projects in India? [We understand that Macquarie
Bank had tied up with Gammon India for the Chennai airport modernisation
The outlook for infrastructure investment in India is very positive. Population
growth, urbanisation and the demands of an increasingly consumer-driven society
have placed pressure on existing infrastructure in a range of sectors, including
electricity generation, telecommunications, airports, water and sanitation.
There are currently many greenfield investment opportunities in India but, as
the market matures over the next 5-10 years, more and more brownfield projects
will become available as investors recycle their capital.
The airports sector in India is an exciting story. Capacity is currently
severely constrained. Macquarie Capital is actively seeking to expand its
airport investment and financial advisory franchise in the Asian aviation sector
and is looking at a range of opportunities.
In the next 5-10 years every airport in India will require either upgrade or
expansion and Macquarie has significant experience and expertise in developing
non-aeronautical revenue. We are looking at all infrastructure investment
opportunities in the aviation sector.
India's infrastructure development ambitions rest largely on private sector
participation. Do you have any specific recommendations to make to the
government to expedite private and foreign sector participation?
In many states in India, governments have initiated the privatisation of
infrastructure assets or have sought private sector financing of new
infrastructure projects with the goal of reducing debt, allowing market forces
to determine the most efficient means of infrastructure financing, improving
efficiency and providing more visible benefits to communities.
The government has already undertaken positive steps to address its
infrastructure deficit and enable private participation in India's
infrastructure requirements, including policy changes and legislative
The high participation of the private sector across so many sectors in India
suggests that developers, sponsors, banks and equity providers have confidence
that there is sufficient equality and fairness in the system and that their
expectations of reasonable results can be met.
Macquarie is exceptionally well positioned to take advantage of the emerging
opportunities for the private sector in India through its partnership with the
State Bank of India. Teaming Macquarie's unparalleled infrastructure-related
experience in the global markets with a strong local partner creates an
exceptionally strong partnership for the sourcing and execution of direct equity
Through our new $2 billion India fund, Macquarie and SBI is looking to raise
capital domestically as well as internationally and we would expect Indian
capital to continue to play an increasingly important role in funding its own
[May 19-25, 2008]