Roads and renewables: Global PE major KKR to raise infra bet in India

KKR & Co is planning to invest a significant portion of its new $6.4 billion Asia-focused fund in the Indian infrastructure sector, including roads, highways, and renewables. The New York-based private equity major has already invested $3 billion in the Indian infrastructure space as part of its total $10 billion investment in the country.

The Asia Pacific Infrastructure Investors II Fund, which closed on February 1, has identified India, South Korea, Southeast Asia, Japan, Australia, and New Zealand for the deployment of funds. “Our first Asia fund invested approximately 30 per cent of its $3.9 billion corpus in the Indian infrastructure sector, and we plan to follow a similar pattern as India continues to be our focus area,” said Hardik Shah, partner at KKR & Co, in a select media briefing here. Shah, who joined KKR’s infrastructure vertical from Canada’s Brookfield in 2019, noted that China is not a focus for the new fund because the private equity sees more opportunity in other markets.

Further stressing KKR’s bullishness on India, Henry H McVey, the PE major’s head of global macro and asset allocation, in a note wrote that India is likely to contribute a fifth of the global incremental growth for the next 5-7 years and the country can be the one of the largest investment arenas to deploy capital in Asia if it continues to stay the course on its current reform-minded approach.

Globally, KKR & Co is planning to double its roughly $553 billion asset-management business by focusing on infrastructure and climate, as well as other markets, such as private wealth and the Asia-Pacific region. The firm has $59 billion of assets under management in the infrastructure sector alone, worldwide.

Like KKR, other global private equity companies are investing heavily in India across health care, information technology, real estate, and infrastructure sectors. US-based Blackstone Inc is the largest PE investor in India, with $50 billion of investments in health care, warehousing, and the real estate sector.

Singapore’s Temasek has invested $17 billion in India, so far, and plans to invest another $9-10 billion in India in the next three years in the health care, IT, SaaS, and fintech sectors, revealed its executives in July last year. Canada’s Brookfield Asset Management is also a large investor in India’s telecom tower infrastructure, realty, and renewable energy sectors, with bets worth $25 billion.

In January, in one of the biggest acquisitions in the roads and highways sector, the KKR-backed Highway Infrastructure Trust acquired 12 road projects from PNC Infratech and PNC Infra Holdings at an enterprise value of Rs 9,005.7 crore. “We are looking at more roads, highways, and expressway projects in India as these projects have clear visibility on cash flows and are inflation-protected. With almost 99 per cent of the toll road revenues moving to FASTags, there is no pilferage, fewer security issues (with cash lying at toll booths), and no process issues, hence we think roads and highways are a good investment in India,” Shah said.

KKR has also invested in India Grid Trust (IndiGrid), an infrastructure investment trust that owns power transmission assets in India; the firm is looking for more assets in the transmission line projects — especially by state governments. IndiGrid’s assets have increased from Rs 5,000 crore to Rs 30,000 crore since KKR acquired the InvIT from Sterlite in 2019. “We think there is a lot of potential in state-government transmission companies for investments,” he said.

McVey, citing “conversations in New Delhi”, in the note said as much as $4-5 billion of annual infrastructure transfers from government to the private sector in each of the next five years lies ahead. At the same time, heavy investment in data centres is helping India to better harness its 900 million internet users, McVey noted.

India’s renewable power sector is also on KKR’s radar, with Shah noting that the PE major working with the Vedanta group and helping it transition from coal-based electricity production to renewable power generation. “We plan to transition most of the coal-based power generation assets of the Vedanta group to renewable energy,” he said. Serentica Renewables, a decarbonisation platform, is driving the firm’s plans in the energy transition sector. In 2020, KKR launched Virescent Infrastructure, a platform to acquire renewable energy assets in India. In September 2022, KKR invested $450 million in Hero Future Energies to bet on renewable assets.

Shah said that in the past 15 years, the Indian market has matured in terms of the availability of assets and clarity in policies, leading to investors’ confidence. "Fifteen years ago, there were not that many operating assets available. So, there was a large amount of capital chasing a few assets. Since then investors have also matured and they have learnt what works and what does not. There's more certainty in government policies in terms of their decision-making,” he added.