CPPIB may buy IndoSpace from Everstone Group

MUMBAI: Canada Pension Plan Investment Board (CPPIB), one of the world’s largest asset managers, is close to buying India’s largest warehousing company Indo-Space, owned by private equity fund Everstone Group, for roughly $700 million. CPPIB will further invest up to $1.2 billion in the company, signalling the continued interest of the Canadian company in India, two persons with direct knowledge of the development said.

Everstone owns 8.5 million sq ft of industrial real estate property through IndoSpace. The group has put off its plan to list as a real estate investment trust, or REIT, for which it had begun initial work last year.

“The group has decided to monetise its warehousing assets as further capital infusion would require a deep-pocketed partner,” said one of the persons aware of the matter. “They were going to bring in a minority partner to establish valuation of the business for the proposed listing, but it is now going with a complete sale.”



“The two companies will sign an agreement in a fortnight,” the second person said. Even though the Union budget in 2016 removed the dividend distribution tax (DDT) on such REITs paving way for such listings, Indian firms are still evaluating its merits, experts said.

GST to Boost Investment
Everstone Capital has the largest industrial real estate portfolio in India with around 8.5 million of operational and leased real estate warehousing and logistics space while another 20 million of under-construction warehouses will come to the market over the next 36 months.

The group had spent about $1.1 billion in developing these industrial real estate assets through debt and equity.

“CPPIB will invest an additional $1.2 billion in the company to develop around 40 million sq.ft. of warehouses over the next five years,” said another person with knowledge of the deal.

An Everstone spokesperson did not respond to an emailed query while a CPPIB spokesperson declined to comment on market speculation in an emailed response.

IndoSpace, a joint venture between Everstone Capital and Realterm Global, has a pan-India presence and counts top global and domestic companies such as Nissan, P&G, L’Oreal, DHL, Samsung, Kuo, Levi’s, among others, as its tenants. The company has all its assets held through separate special purpose vehicles (SPVs).

Private equity consultants say the implementation of the Goods and Services Tax (GST) would be the major driver of investments in the sector.

“Private equity firms have been keen on the logistics and the warehousing sector in recent times. The GST implementation would aid returns in the sectors since as the operational efficiency goes up, rental costs go down. It will also provide businesses the opportunity to realign their supply chain,” said Sanjeev Krishan, executive director and head, private equity transactions advisory services, PricewaterhouseCoopers India.

SUNRISE SECTOR
For CPPIB that opened its India office in 2015, real estate and infrastructure has been one of the sunrise sectors in India. Earlier this month, the fund had agreed to invest $250 million for a 30% stake in Island Star Mall Developers Pvt. Ltd, a unit of Phoenix Mills Ltd.

The fund also entered into a joint venture with Larsen and Toubro Ltd. with a commitment of Rs 2,000 crore in L&T’s infrastructure asset development subsidiary L&T Infrastructure Development Projects.

The fund has put together a consortium with global PE fund KKR to buy 10.3% stake in Bharti Infratel for $952 million. It also holds around 6.26% stake in Kotak Mahindra Bank.

The fund, that has a total of around Canadian $300 billion of assets under management, has put to use about $4 billion in India so far.

According to global consulting firm EY, the size of the Indian warehousing industry (across commodities and modes) is pegged at about Rs 56,000 crore (excluding inventory carrying costs, which amount to another Rs 4,340 00 crore). The industry is growing at over 10% annually.

According to the report, industrial and retail warehousing amounts to around 55% of the entire industry.

With the growth of e-tailing in India, the warehousing and logistics market here has seen an unprecedented surge in the past three years.