The Canada Pension Plan Investment Board (CPPIB) and Phoenix Mills have teamed up to develop, own and operate retail assets across India in a deal that could see Canada’s biggest pension fund investing up to $246 million into the Indian mall developer’s platform, according to a joint announcement from the two parties on Wednesday.
To kick off the partnership, CCPIB’s is investing C$149 million ($110.9 million) for a 30 percent stake in Phoenix Mills rapidly expanding India retail platform, Island Star Mall Developers. The local developer already has shopping centres established or in the pipeline in the Indian cities of Mumbai, Pune, Bengaluru and Chennai.
With fresh capital from CPPIB, Phoenix Mills is set to expand its mall portfolio further, and the newly signed agreement allows for the Canadian fund manager to take up to a 49 percent stake in the joint venture by investing up to C$330 million ($246 million) in multiple tranches.
Joint Venture to Pursue Acquisitions and New Projects
“This is a landmark transaction for Phoenix Mills and a first-of-its-kind for India’s retail real estate industry,” said Atul Ruia, joint managing director for Phoenix Mills.
The platform has a broad brief, with plans to acquire both greenfield assets on newly purchased land banks and existing retail assets – all of which will be managed by Phoenix Mills. The pre-money enterprise value for the platform stands at around C$454 million ($337 million), according to the joint statement.
CPPIB cash will buy it a stake in six million square feet (557,000 square metres) of retail space under the Phoenix Market City brand, plus the opportunity to co-invest in new projects.
Getting Money out of Indian Malls
“We believe that India will be a leading source of global growth in the coming decades and that there will continue to be attractive investment opportunities for CPPIB,” said Andrea Orlandi, managing director and head of real estate investments for Europe at CPPIB.
The Indian retail sector is expected to see sustained growth over the long term due to favourable demographics and the rise of the middle class, according to the announcement, which added that international retailers are increasingly attracted to India as a growth market.
However, retail space overall shrank to a net negative supply in India in 2016, according to a recent JLL survey. The report noted that five malls shut down during the studied period and ten others changed to office or other uses, resulting in 3.5 million square feet of retail space getting withdrawn from the operational stock. The JLL report added that 2017 appeared to be a strong year for Indian retail, with 9.1 million square feet of supply expected.
CPPIB Has Eyes for East Asia Retail
CPPIB, which manages around $300 billion invested globally, had assets of around $3.7 billion in India as of the end of 2016, and the company has been investing in the subcontinent since 2010. Recently CPPIB, along with Caisse de dépôt et placement du Québec, another Canada pension fund, bought a 1.5 percent stake in Kotak Mahindra Bank for $338 million.
When it’s not snatching up student housing with a Singaporean sovereign wealth fund, CPPIB has a taste for the Middle Kingdom on the retail front. Late last year CPPIB spent more than $680 million on three Chinese retail deals in just two weeks: $162 million for a 40 percent of a shopping mall in northeast China, $147 million for a 49 percent stake in Chongqing’s West Paradise Walk and over $375 million for a 25 percent in CapitaLand’s Raffles City China Investment Partners III fund.