India’s infra market remains attractive: KKR India

I think success begets success (and I don’t mean this as KKR raising a second fund!). You continue to see interest in the Indian infrastructure sector and more assets becoming available. We see more opportunities to deploy capital in a sensible manner, into asset creation, and I think foreign investors will see more opportunities to deploy here. During 2016-17, you would have seen an influx of new investors in the Indian infrastructure market; whether it’s general partners such as KKR, direct investors, sovereign wealth funds, pension funds, or insurance companies. There are interesting investment opportunities with extremely fair risk-adjusted returns.

Yes. The market is so deep that there’s enough for everyone to do. There’s a real opportunity to deploy very sensibly in the market and investors are broadly happy with what they’ve done.

Infrastructure has a lower cost of capital than private equity because, generally speaking, infrastructure assets have lower risk. We look at the underlying business and risk in the cash flows and define whether it deserves an infrastructure cost of capital. Take, for example, a renewable power plant that is selling into the merchant market. This asset may be infrastructure in theory. However, in our definition, it is not infrastructure because there is no certainty on cash flows. The flip side is businesses like LEAP India (a pallet pooling platform), which may not fit the classic definition of infrastructure but has characteristics such as an extremely robust business and high cash flow generation, and operates in a market that’s growing.

India is a key market for KKR’s Asia-Pacific infrastructure strategy, just as the market is a key part of our wider investment strategy across the region. Our funds broadly have investment periods of six years. So, in theory, we could be deploying capital from this fund for the next six years. Past experience has shown that we end up deploying in three years.

Over the last 15 years, foreign investors have seen the markets mature a lot. There’s more precedent in dealing with government authorities, especially in sectors like roads and renewables, where there are many private assets. Valuations and pricing have turned sensible for everyone. But in the last six to eight years, I’d say most infrastructure investments have actually been quite successful.

I think the government has done a really good job at listening. There has been a lot of consultation with investors and bidders. HAM was launched when domestic developers, who are the main bidders for BOTs, didn’t have capital. When the market regained capital, they said let’s expand the amount of work. Being able to deploy more assets in response to market circumstances has created more assets for the country.

Yes, we are deploying in batteries. We have also invested in SingTel’s data centre business, which has several ongoing greenfield construction projects for new data centres. We’re doing both battery storage and data centres with Serentica. At Hero Future Energies, we are building a lot of greenfield renewable capacity. We’re not shying away from asset creation. We are quite conscious about which sectors we will go into and which we won’t. If risks can be underwritten properly and they’re well defined, it’s something we’re willing to look at.

It’s a good question. I think it would be best answered by the company.

IndiGrid is a core part of our business, and we will continue to be the long-term managers. In an InvIT [infrastructure investment trust], the manager is different from the owner, and we will continue to see ourselves in the management role for a longer term. It’s something that we’ve scaled up six times in the last five years.