Canada Pension Plan Investment Board (CPPIB) plans to invest CAD330m (€231m) in its first retail property joint venture in India.
The arrangement will eventually give the Canadian investor a 49% stake in a platform to build and redevelop shopping malls in a country that is forecast to become the world’s third-largest consumer market.
CPPIB has signed a definitive agreement with The Phoenix Mills Limited (PML) to develop, own and operate retail-led, mixed-use developments.
India is forecast to become the third-largest consumer market by 2025, according to Boston Consulting Group
It will initially own 30% of the venture with an equity commitment of approximately CAD149m, and will invest additional capital in multiple tranches to reach its 49% stake.
Island Star Mall Developers, a PML subsidiary, will serve as the platform to implement the strategy. PML will manage all development and operational assets in the new platform.
Island Star owns Phoenix MarketCity Bangalore, a 1m sqft mall opened in 2011 in Bengaluru.
The platform will acquire and develop greenfield assets on newly purchased land banks, and existing operating retail assets to be transformed into high quality malls, according to CPPIB.
The agreement marks CPPIB’s first foray into India’s burgeoning retail sector. The pension fund is already active in the country’s office, residential and infrastructure markets.
“India will be a leading source of global growth in the coming decades,” said Andrea Orlandi, managing director and head of real estate investments for Europe at CPPIB.
India is forecast to become the third-largest consumer market by 2025, according to Boston Consulting Group (BCG). Nominal year-over-year consumption expenditure growth of 12% is more than double the anticipated global rate of 5%, the company said.
For the first time, wealthy Indians will represent the largest segment of consumers in the country, BCG said, constituting 40% of all spending by 2025.
According to BCG, about 40% of India’s population will be living in urban areas by 2025, and city dwellers will account for more than 60% of consumption, with emerging cities posting the most rapid growth rates.
Consumer expenditure in these cities are already rising by nearly 14% a year, ahead of the 12% annual pace of growth in India’s biggest cities.
Retailing this year produced one of India’s new billionaires when Radhakishan Damani successfully listed his discount chain Avenue Supermarts.
Solid economic growth, strong capital inflows and the rupee’s strongest rally since 1975 have allayed fears that last year’s removal of large denominations of bank notes from circulation would stifle commerce and investment activity.
According to a Capital Economics note, “India’s economy is getting back on its feet after the disruption caused by de-monetisation”.
Until recently, most analysts had been expecting The Reserve Bank of India to engage in further loosening of monetary policy to stimulate growth, but Capital Economics believes policymakers may soon need to check a rebound in inflation. “We think there’s a good chance that it will be forced to tighten towards the end” of 2017, Capital Economics said.