The C$368.5 billion ($273.4 billion) Canada Pension Plan Investment Board (CPPIB), and India-based Piramal Enterprises Limited have signed a memorandum of understanding to co-sponsor a renewable energy-focused infrastructure investment trust that will have initial funding of $600 million.
The institutional investors said the trust would seek to acquire up to 1.5 gigawatts to 2 gigawatts of cash-generating renewable assets on a hold-to-maturity basis.
“The renewable energy sector is at an inflection point and is witnessing significant consolidation, the pace of which is likely to increase in the near future,” Piramal Group Chairman Ajay Piramal said in a release. “We believe that the timing is therefore opportune for aggregating assets in this sector given that the existing players are willing sellers in light of a constrained capital market environment— both debt and equity.”
CPPIB will contribute the lion’s share—$360 million—while Primal will pony up $90 million, and both will have the ability to add to that.
CPPIB and Piramal Enterprises Limited will act as co-sponsors of the proposed trust, and hold up to 75% of the units with CPPIB alone holding up to a 60% stake, with Piramal’s stake at 15%. They said they will seek to raise capital from other investors for the remaining 25%. Prior to the trust’s launch, the two firms will jointly warehouse seed assets for the proposed trust, while Piramal will act as the sole investment manager and project manager for the trust.
“The foundation of this partnership is based on a shared ethos and values that leverage CPPIB’s global track record of value creation in the infrastructure space with PEL’s long-term strategy and goodwill in India,” said Piramal. “We are enthusiastic about the opportunity, as it is truly scalable, and continue to remain committed to creating value for our shareholders.”
According to CPPIB’s 2018 report on sustainable investing, the fund believes investing in renewables can provide attractive risk-adjusted returns. In December 2017, CPPIB signed agreements with Brazil’s Votorantim Energia to form a joint venture, acquiring two operational wind parks located in Northeastern Brazil through an initial contribution of C$272 million ($202.2 million) in equity.
And in January 2018, CPPIB announced plans to acquire a 6.3% stake in ReNew Power, an India-based renewable energy developer. CPPIB’s initial investment of $144 million was followed by an additional $247 million in April, bringing its total investment in ReNew to $391 million.
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