German insurance giant Allianz’s latest $150 million commitment to an Indian real estate debt fund marks the latest step in a plan to raise its investment into the country’s private debt market from $650 million to $1 billion by the end of 2021.
In March the insurer’s inhouse manager Allianz Investment Management committed $150 million to Kotak Investment Advisors (KIAL)'s $380 million real estate debt fund as part of this plan. Ritu Arora, chief executive and chief investment officer for Asia at Allianz IM, believes private debt in India should enjoy healthy growth, courtesy of rules changes in recent years and the limited access some local companies have to traditional lending.
“Sector reforms like RERA [the Real Estate (Regulation and Development) Act of 2016] have introduced more transparency [and] enhanced ease of doing business, thus strengthening our belief in the structural opportunity for private credit for an institutional investor,” she told AsianInvestor.
Allianz IM's investment into KIAL's fund will target early- and late-stage commercial and residential real estate assets. Arora, who is also India adviser to the German insurer group’s board, explained that Allianz decided to make the investment in part because of the Kotak Mahindra Bank subsidiary’s 15-year history in alternative assets and experience in the Indian credit market.
The partnership follows Allianz IM, which has €40 billion ($47.64 billion) in assets under management in Asia, committing $200 million to a private debt platform run by Indian fund house Edelweiss Asset Management in 2019. As of March 2021, its total private credit investments in India stood at $650 million.
Allianz IM wants to raise this allocation to $1 billion by year-end. Arora says it intends to achieve this by evaluating opportunities on a case-by-case basis.
“Going into 2021, we have a strong pipeline of investments that we are currently evaluating across the capital spectrum,” she noted, adding: “We would like to benefit from the continuous growth potential of the Indian economy, and finance attractive companies as we see opportunities presenting [themselves].”
PRIVATE DEBT'S APPEAL
Allianz IM’s interest in Indian private debt has been mirrored by several other international pension funds and insurers.
In 2016, Canada’s Caisse de depot et placement du Quebec (CDPQ) partnered with Edelweiss to invest up to $700 million in stressed assets and private debt opportunities in India. Canada Pension Plan Investment Board (CPPIB) is also active in this space through a $225 million commitment to a distressed asset investment platform India Resurgence Fund. Both CPPIB and CDPQ have offices in India.
The asset owners are adding more resources because the asset class offers an enticing investment opportunity: global providers of long-term capital in India can expect net returns of 10% to 14% post expenses, with distressed assets yielding towards the higher end, according to Edelweiss’s chief executive officer Hemant Daga.
The appealing returns stem from a structural deficit in India’s lending industry. Local banks and non-banking financial companies face several lending constraints which has allowed foreign players to enter India’s private credit space and help fill this need, Daga told AsianInvestor earlier this year.
Arora added that India’s introduction of the 2016 Insolvency and Bankruptcy Code, which addresses a long-standing issue of non-performing loans in the country, has also offered international investors more confidence in the Indian distressed debt market.
Indeed, Allianz IM’s moves to increase its private debt investments have been mirrored by several other international pension funds and insurers.
In addition, India’s property asset class is also garnering global asset owner attention. In 2019 Allianz used its real estate arm to commit $150 million to a $500 million office development platform managed by Godrej Fund Management, in which Dutch pension fund manager APG also invested.
“India has been one of the most active markets in Asia – not just for APG but for many of our peers,” APG’s head of infrastructure and natural resources for Asia Pacific Hans-Martin Aerts told AsianInvestor in an earlier interaction.
Allianz Real Estate also partnered Indian conglomerate Pallonji Group in October 2017 on a $500 million commercial office real estate fund, and a year later set up a $1 billion logistics platform with developer ESR Group.
INVIT-ATION TO INVEST
In addition, Allianz and some peers have put assets to work in infrastructure in India, as the government seeks to improve inadequate transportation, communication and utilities networks.
India’s latest budget in February announced the launch of new government-sponsored power and highway infrastructure investment trusts (Invits) as part of wider measures to crowd in foreign private investment into Indian infrastructure. The government has identified $1.5 trillion-worth of projects as part of its National Infrastructure Pipeline.
Allianz Capital Partners (ACP), the group’s alternatives arm, was an anchor investor in the roads-focus Invit launched by developer L&T IDPL in May 2018.
Much like Reits, Invits allow individual and institutional investors to earn dividends from investing in infrastructure assets. ACP picked up a 25% stake worth approximately $128 million, while partner anchor investor CPPIB exchanged $150 million for a 30% stake. In February 2019, Ontario Municipal Employees Retirement Systems’ infrastructure arm picked up a 22.4% stake.
Arora believes the new opportunities for foreign investors to get involved in Invits will lead to more inflows and allow developers to deleverage, providing them fresh capital for a further infrastructure development in India.
INSURANCE REFORMS REQUIRED
The Allianz IM senior executive also welcomed the budget’s announcement to increase the foreign direct investment (FDI) limit in India’s insurance sector to 74%.
“The sector will benefit from global players’ knowledge, technology capabilities and digital solutions. It will lead to more competitive products and better distribution channels,” Arora said.
She echoed the view of Deloitte India partner Sanjoy Datta that the country's insurance sector may see consolidation as a result of the reforms. In an interaction with AsianInvestor earlier this year, Datta cautioned that the government would be wise to act quickly to carry out the announced rules changes.
“When the insurance quota went up from 26% to 49%, in March 2015, the detailed guidelines came out only the following year, which frankly dampened interest," he said. “This time around, I believe we will see guidelines coming out much sooner.”
Indeed, India’s parliament approved the proposed bill a few weeks ago.
In addition to investing into Indian assets, Allianz Group is active in the country’s insurance market through two joint ventures: Bajaj Allianz Life Insurance and Bajaj Allianz General Insurance, both set up in 2001. It also runs a reinsurance business, Allianz Global Corporate and Specialty, founded in 2006.