Thursday, May 10, 2018

CPPIB Goes on a Buying Spree?

Benefits Canada reports, CPPIB invests in Indian roads, Korean tower, buys Enbridge renewable power stake:
The Canada Pension Plan Investment Board is among the anchor investors in India’s first private infrastructure investment trust.

Sponsored by L&T Infrastructure Development Projects Ltd., the CPPIB and Allianz Capital Partners will take a combined 55 per cent stake in the IndInfravit trust. The trust will focus on developing toll roads and other road infrastructure. It will initially acquire five operational toll roads spread across four Indian states.

The CPPIB is taking a $200-million stake, amounting to 30 per cent of the trust’s units, in addition to taking a board position.

“This investment allows CPPIB to deepen our relationships with Allianz Capital Partners and L&T IDPL, and demonstrates our commitment to investing in India. The rapidly growing Indian economy brings with it a need for sound infrastructure, and we are pleased to be able to support this growth, while delivering solid long-term risk adjusted returns for the CPP fund,” said Scott Lawrence, managing director and global head of infrastructure at the CPPIB, in a press release.

In another investment move, the CPPIB is spending $1.8 billion to enter into a joint venture and acquire 49 per cent of a selection of Enbridge Inc.’s North American onshore renewable power assets. It’s also acquiring a 49 per cent interest in two German offshore wind projects.

“The monetization of $1.75 billion of renewable assets through our newly formed joint venture with CPPIB is an important step in achieving the objective we set when we rolled out our three-year plan and strategic priorities in December,” said Al Monaco, president and chief executive officer of Enbridge, in a press release.

“This deal makes a significant contribution to our $3-billion asset sales target for the year and will also eliminate $500 million of equity capital requirement that we had previously included in our funding plan. This transaction, in addition to our other funding actions taken since April, accelerates funding for our secured capital program and gives us increased financial flexibility.”

The assets in the joint venture include all of Enbridge’s Canadian renewable assets, as well as two U.S. entities, the Cedar Point wind farm in Colorado and the Silver State North solar project in Nevada.

In addition, the CPPIB and Enbridge have agreed to work together on forming a 50/50 joint venture involving European offshore wind projects in the future.

“We are also very pleased to be partnering with CPPIB in future development of our European offshore wind business, which we believe will have great opportunities for years to come,” said Monaco. “The combination of our operating and development capability with CPPIB’s resources and experience creates a powerful Canadian champion for developing offshore renewable energy projects in Europe.”

And finally, the CPPIB announced a joint venture to acquire to acquire a Grade A office building, the Kumho Asiana main tower in Seoul, for about $500 million. “The opportunity to invest in one of the largest office markets in Asia through this prime office building fits well with CPPIB’s strategy to invest in top-tier, well-located real estate,” said Jimmy Phua, managing director and head of real estate for Asia at the CPPIB.
As you can see, the folks at CPPIB have been very busy buying up all sorts of private market assets at home and abroad.

You can read the press releases on each deal below:
First, let me congragulate Scott Lawrence. CPPIB recently shuffled its senior ranks making two announcements, one here and another more rcent one here, and Scott Lawrence took over as the global head of infrastructure following the departure of Cressida Hogg.

He's going to be responsible for a C$25 billion infrastructure portfolio which continues to grow which is why I find it odd that he's just a managing director and not a senior VP.

Anyway, these are huge deals. I like all of them. India has huge unmet infrastructure needs and a young and rapidly growing population. Buying a Grade A office building in Seoul with GIC is definitely a smart long-term move.

South Korea is a bellwether and barometer of the global economy and even though its exports have shrunk lately, which isn't a good sign for the global economy, this is an Asian powerhouse:

Notice CPPIB bought a top office building, a safer way of investing in Seoul's commercial real estate because it will be collecting income on long-term leases for many more years.

But the biggest deal by far was the deal with Enbridge. Dan Healy of the Toronto Star reports, Enbridge’s shares rise after it inks renewable power deal with CPPIB:
Shares in Enbridge Inc. rose Wednesday after it announced it will gain nearly $3.2 billion through two deals to sell renewable power facilities in North America and Europe and natural gas gathering and processing assets in the United States.

The deals announced hours before its annual general meeting in Calgary allow Enbridge to declare mission accomplished on its goal of raising $3 billion from non-core asset sales in 2018 to reduce its heavy debt load and help fund its $22-billion growth program.

Enbridge shares rose as high as $41.48 in morning trading on the Toronto Stock Exchange, up about 2.6 per cent from Tuesday’s close.

Enbridge said it had inked a $1.75-billion agreement with the Canada Pension Plan Investment Board (CPPIB) to sell a 49-per-cent stake in most of its wind and solar power assets.

“The monetization of $1.75 billion of renewable assets through our newly formed joint venture with CPPIB is an important step in achieving the objective we set when we rolled out our three-year plan and strategic priorities in December,” said Enbridge CEO Al Monaco in a news release.

“This deal makes a significant contribution to our $3-billion asset sales target for the year and will also eliminate $500 million of equity capital requirement that we had previously included in our funding plan.”

Separately, the Calgary-based firm said it will also sell Midcoast Operating LP to an affiliate of private equity firm ArcLight Capital Partners LLC for about $1.44 billion.

Midcoast operates facilities in Texas and Oklahoma to process and treat natural gas and natural gas liquids.

The sale is an important step in the company’s shift to a pure regulated pipeline and utility model, Monaco said.

Enbridge and CPPIB have agreed to create a joint venture that includes all of its Canadian renewable power assets, as well as the Cedar Point Wind Farm in Colorado and the Silver State North Solar Project in Nevada.

The deal also includes Enbridge’s interests in two German offshore wind projects that are under construction — CPPIB has agreed to fund its share of the remaining costs to complete the projects, estimated at about $500 million.

In a news release, the CPPIB said it is buying a stake in 14 long-term fully contracted operating wind and solar assets in four Canadian markets. With the two plants in the U.S., there is a combined installed capacity of approximately 1.3 gigawatts, it said.

“Since December 2017, CPPIB has committed to wind and solar investments in Brazil, India, Canada, and now the U.S. and Germany,” said Bruce Hogg, managing director and head of power and renewables for the CPPIB.

“Through the joint venture, we will have the opportunity to grow our renewables portfolio across the European offshore wind market. As power demand grows worldwide, we will continue to seek opportunities to expand our power and renewables portfolio globally.”

Enbridge and CPPIB have also signed a deal to form a 50-50 joint venture to pursue future European offshore wind projects.

Enbridge said it will retain its interests in certain other U.S. renewable power assets.

Both the Midcoast and CPPIB transactions are expected to close in the third quarter, subject to regulatory approvals and customary closing conditions.
Bruce Hogg, no relation to Cressida Hogg, is another managing director at CPPIB doing an outstanding job investing in power and renewables across the world.

Enbridge bought the wind farm assets from E.On four years ago for $650 million, so it made a nice profit  on this deal.

The deal helped lift Enbridge shares (ENB) but the stock remains in a slump, part of the rout in dividend stocks as everyone is worried interest rates will continue rising higher and higher (click on image):


Anyway, there's not much more to add here except CPPIB is executing on its strategy, beefing up its private market assets all over the world.

Below, Mark Machin, President & CEO of Canada Pension Plan Investment Board discusses how to align asset owners and asset managers for the long term by optimizing investment mandates. He speaks with Alison Loat of FCLTGlobaland and raises excellent points (h/t, Michael Jacobs).

If you want to understand why CPPIB and other large Canadian pensions focus more on private markets than public markets, part of the reason is that it's easier to focus on the long run in private markets and not succumb to short-term performance pressures.

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