Sovereign Wealth Fund Institute

Khazanah Nasional, a Malaysian sovereign wealth fund plans to invest directly into India in sectors such as financial services, infrastructure, and energy. India is one of the BRIC economies that had increased its economic growth tremendously this past decade. In addition, India is slowly opening up its economy to foreign investors by loosening some investment restrictions and regulations. Earlier in June, Khazanah and the Infrastructure Development Finance Company Limited (IDFC) agreed to set up a joint venture to produce a dedicated infrastructure development company that focuses on road transportation development. Khazanah would hold 80.1% of the equity share of capital in the proposed joint venture.

Khazanah Nasional is also evaluating proposals in India’s geothermal and hydroelectric business segments. In fact, much like the rest of Southeast Asia, India has strong demand for electricity and current power plants are not meeting demand.

Historically, investment access to India’s equity markets has created several problematic issues and headaches for sovereign wealth funds. Currently, sovereign wealth funds are grouped under the category foreign institutional investor or FII defined by the Securities and Exchange Board of India (SEBI).

A few current sovereign-entity FIIs registered include:

• Abu Dhabi Investment Authority
• Abu Dhabi Investment Council
• Australian Future Fund
• Provincial Government of Alberta (AIMCo)
• China’s National Social Security Fund
• Fullerton Fund Management Company LTD (SWE of Temasek Holdings)
• Kuwait Investment Authority
• New Zealand Superannuation Fund
• Norges Bank
• Queensland Investment Corporation
• Singapore’s GIC

Sovereign entities can also invest as a Foreign Venture Capital Investor. FII’s are under strict regulation and cannot hold large positions in listed Indian companies. Times have changed, India wants to increase foreign investment in companies and attract foreign capital. There is a heavily-debated plan underway to create a new defined class of investor for sovereign funds which will be fundamentally different from the FII classification. This new proposal for sovereign funds would allow them to hold a much larger stake at 20% compared with 10% for a publicly traded Indian firm. The plan must be approved by SEBI and receive permission from the Reserve Bank of India. India’s fear was that foreign governments could create numerous sovereign entities to bypass the 10% rule and thus effectively control the company for geopolitical reasons.

Recently, the Government of Singapore Investment Corporation opened up an investment office in Mumbai. This was after India and Singapore signed a Comprehensive Economic Co-operation Agreement (CECA). The Indian Government would also treat Temasek Holdings and GIC as separate investors, not acting in concert in potential large stake undertakings. Sovereign wealth funds are warming to investing in the Indian equity markets as the Government of India begins to warm up to foreign investments.

Tony Tan

The press release states, “GIC officially opened its India office in the city of Mumbai on 31 March 2011. This is GIC’s eighth overseas office outside Singapore. GIC’s India office will be headed by Mr Kishore Gotety. The office will be made up of more than 10 investment and asset management professionals. The team aims to foster close relationships with key Indian partners who share GIC’s values as a responsible and long-term investor.

GIC Deputy Chairman and Executive Director, Dr Tony Tan, said, ‘GIC has been amongst the earliest institutional investors in emerging Asian markets. In India, GIC has been investing across the public and private markets since the early 1990s. The setting up of the India office demonstrates GIC’s commitment to secure a larger role in the Indian growth story.’”

Read more: GIC Press Release

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According to BusinessWeek, “Temasek Holdings Pte Ltd., the Singapore state investment company, is seeking stakes in Indian power producers including GMR Group as they double capacity to meet demand in the world’s second-fastest growing major economy.

“We are in advanced discussions with GMR,” Wong Kim Yin, managing director for energy investments at Temasek, told reporters at a power conference in Singapore today. “We are trying to get exposure to the domestic India markets.”

Temasek manager of about S$172 billion ($123 billion) of assets, is betting utilities will ramp up generation in the next seven years to overcome power shortages that India’s government says are constraining economic growth. The 17-member Bombay Stock Exchange Power Index has climbed 62 percent in a year, lagging behind the 70 percent gain in the main Sensitive Index.

“Temasek is probably entering at the right time as the sector and the company have a lot to offer in the short term,” said Abhineet Anand, a Mumbai-based analyst with Antique Stock Broking Ltd. He recommends investors buy shares of GMR Infrastructure Ltd., a unit of GMR Group, with a one-year price target of 82 rupees.”

read more: BusinessWeek

According to the Business Standard, “the finance ministry and the Reserve Bank of India (RBI) has asked the Securities and Exchange Board of India (Sebi) to examine whether a proposal by Temasek Holdings and Government of Singapore Investment Corporation (GIC) to increase their stakes in ICICI Bank would trigger the takeover code under which they would have to make an open offer to buy an additional 20%. The Singapore government has sought clarification on a proposal for the two companies to increase their stakes in ICICI Bank to 20 per cent, each holding 10 per cent. This would collectively make them the largest shareholders in the country’s largest private bank. Currently, Life Insurance Corporate is the single largest shareholder with 9.38%. The two Singapore investment vehicles currently hold 10.3 per cent in the bank — Temasek 8 per cent and GIC 2.3 per cent.

Sebi is yet to take a final view on the issue, sources said. The issue hinges on whether the two entities should be treated as one entity or not.”

read more: Business Standard

According to Temasek, “Temasek Holdings Advisors India Pvt. Ltd (Temasek) has announced the expansion of its India operations with the launch of its Chennai branch office. While Temasek enjoys a strong presence in the North and the West, the Chennai office represents a strategic geographical diversification to focus on the large South India market, providing an ideal base from which to penetrate the untapped areas in the South. Temasek commenced its India operations in 2004 with the establishment of its Mumbai office.”

read more: Temasek Holdings Press Release

According to the Economic Times, “The finance ministry has proposed that a key agreement between India and Singapore be amended to prevent two Singapore government-owned investment entities — Temasek and GIC — from together holding more than 10% equity stake in any publicly-traded Indian company.

Under the current SEBI regulations, a foreign institutional investor (FII) cannot hold more than 10% in a single Indian company. Different FIIs owned by a common entity are classified as an FII group and are subject to the 10% cap. GIC and nine wholly-owned subsidiaries of Temasek are registered separately with the market regulator as FIIs, and as they have a common owner, they should have been categorized as an FII group, according to a note prepared by the ministry.

However, the Comprehensive Economic Co-operation Agreement (CECA) signed between the two countries in 2005 treats GIC and Temasek as unrelated and independent entities. It gave Temasek and GIC the right to hold 10% individually in a single company thereby allowing them the option to together increase their shareholding to up to 20% in a company.”

read more: Reuters

According to Bloomberg, “Middle East investors including the Brunei Investment Agency, the Abu Dhabi Investment Council and Qatar Insurance Co. can also buy equities in India for the first time, according to the regulator.

The Gulf Cooperation Council states, which together pump about one-fifth of the world’s crude, earn more than $1.2 billion a day from oil sales.”

read more: Bloomberg

The press release states, “Temasek Holdings (Temasek) is expanding its focus on India and will be opening an office in Mumbai, India. This move reflects Temasek’s optimism in the potential of the Indian market, as well as Temasek’s commitment to participating in and contributing to the growth and success of India, at a time when the Indian economy is at a point of inflexion.

Leading the team in India would be Mr Manish Kejriwal, who is joining Temasek as its Managing Director, India. Mr Kejriwal will be responsible for overseeing Temasek’s interests in India. Mr Kejriwal will be supported in India by Mr Ravi Krishnasamy, currently a Director of Investments at Temasek.

In India, Temasek is open to evaluating opportunities in multiple sectors and at different stages, but the focus will mainly be on making direct investments into companies with good growth potential. In addition, Temasek will work with the Temasek-Linked Companies (TLCs) to identify investment opportunities in India.

As an indication of Temasek’s interest in India, it has made a few investments in India recently. Temasek has invested a 5.2% stake in ICICI Bank, and has set up the US$100 million Merlion India Fund which aims to invest in promising mid-to-late stage Indian companies.

Mr. Kejriwal joins Temasek from McKinsey & Company, Inc. where he is a Partner. He is the hub leader for McKinsey’s corporate finance & strategy practice in India, and was responsible for all merger & acquisition engagements for both Indian and international companies looking at entering the Indian market. He is also the co-leader of McKinsey’s business process outsourcing & offshoring practice in India and is in the global leadership team of the private equity practice. Mr Kejriwal has previously been based in New York and Cleveland.”

Read more: Press Release