By William Patalon III
Managing Editor
Money Morning/The Money Map Report
India's finance ministry said it has approved foreign direct investment proposals to allow the U.S.-based Goldman Sachs Group Inc. (GS) and Australia's Macquarie Group Ltd. to invest $39.344 million (1.56 billion rupees) for as much as 40% in PTC India Financial Services Ltd., a subsidiary of PTC India LTD.
All told, India's Foreign Investment Promotion Board (FIPB) has cleared 22 foreign direct investment proposals worth $128.9 million (5.11 billion rupees) , the government reported.
The key deal was the FIPB approval of a proposal of power trading firm PTC India to sell the 40% stake in its new financial services arm, PTC India Financial Services. The approval would make it possible for PTC India to sign definitive agreements with private equity firms Goldman Sachs and Macquarie Singapore for PTC Financial Services (PFS), subject to final clearance from finance minister P Chidambaram, official sources said.
PTC India, the country's biggest electricity trader, would hold a 60% equity stake in PFS. The two foreign partners would hold 20% each. The power trading major has already secured a license from the Reserve Bank of India for PFS, which will function as a non-banking financial company.
In a developing market such as India, infrastructure needs are first and foremost among needs to be met. And power may be at the very top of that narrowed list of infrastructure needs. But the state can't afford to finance them all by itself. It's often better to bring in private-sector ventures and allow them to play such key roles as capital formation, deal making and risk-management.
These private sector ventures often end up with several members, each of which has unique geographic, market and technical specialties. And since they also each have their own profit incentive, they also represent a profit opportunity for This underscores just why infrastructure investments are such a great opportunity for global investors looking to capitalize on an emerging market.
Power trading is an excellent way to proceed. PTC India aims to provide financial services to power projects and also to pick up equity in power projects through PFS. The new entity would make direct and indirect investments in power units in consensus with partners.
Australian investment bank Macquarie has made its second move into infrastructure in an emerging market this year after buying a stake in an Indian power sector investment company with Goldman Sachs.
The acquisition comes seven months after Financial News reported that Macquarie had formed a joint venture to invest in Russian infrastructure with Moscow-based investment bank Renaissance Capital. The joint venture was created to invest in transport, utility and port projects across Russia and the Commonwealth of Independent States.
The investment in PTC India Financial Services means Goldman Sachs and Macquarie have followed JPMorgan Chase & Co. (JPM) and other financial institutions into India's infrastructure sector. JPMorgan just last month said it was setting up a fund to invest in infrastructure projects in the country. UK-listed private equity company 3i Group PLC and U.S. investment banks The Blackstone Group LP (BX) and Citigroup Inc. (C) have also this year revealed plans to invest in Indian infrastructure, with 3i planning to raise a dedicated $5 billion fund.
News and Related Story Links:
- CNNMoney.com:
Indian Govt Allows Goldman Sachs, Macquarie to Invest 1.56 Billion Rupees in PTC. - The Economic Times:
PE Firms' Investment in PTC Arm Okayed. - Financial News Online (U.S.):
Macquarie Buys into Indian Infrastructure.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.