Business Today

Retaining faith

Sanjiv Shankaran        Print Edition: Aug 19, 2012

Temasek Holdings, a sovereign wealth fund of the Singapore government, derives its name from an old coastal town that stood at the spot Singapore does now. And just as this spot metamorphosed over the past century into one of the world's most advanced and wealthy nations, Indian infrastructure too, the company hopes, will transform itself for the better.

Rohit Sipahimalani, Temasek's Co-chief Investment Officer and India head, does not share the widely expressed view that the Indian economy is in serious trouble.

Is India a challenging market? "Not really," he says. He is not being diplomatic. "We see infrastructure as a significant sector," he adds.

Infrastructure is one of India's weakest links and its state seems to encapsulate the policy paralysis in the government.

Temasek, however, is unperturbed, and is looking for opportunities in a sector the Planning Commission estimates will require $1 trillion investment in the next five years. (A trillion is 100,000 crore.)


Infrastructure is one of India's weakest links but Temasek hopes the sector will be transformed"

India, where Temasek opened its office eight years ago, figures prominently in the company's global strategy. In January this year, talking about future global trends, Temasek CEO Ho Ching said that, by 2050, India would become the second-largest economy in the world on a purchasing power parity basis.

At the end of March 2012, Temasek's exposure to Indian assets was a little less than five per cent of its $157 billion portfolio. That translates to about Rs 40,000 crore, based on the currency exchange rate at the time.

However, the exposure in rupee terms is only about two per cent of the Indian portfolio, which means not all of Temasek's investment is through deals on domestic stock exchanges.

Temasek declines to disclose details of returns on its Indian assets. Its officials would only say that, for the entire portfolio, returns on investments made since March 2002 were over 18 per cent on an annualised basis. Temasek has a thematic approach to investing, which explains its attraction towards infrastructure.


Temasek's India exposure is about five per cent of its $157 billion portfolio. That translates to almost Rs 40,000 crore."

Certain overarching investment themes serve as its compass. It starts by identifying economies that are in the process of transformation. The transformation manifests itself partly in the form of expanding consumer demand.

It follows that a transforming economy can throw up businesses with unique strengths and companies poised to shift gears. Using these overarching themes, Temasek hunts for investment opportunities.

In India, one of Temasek's key investments has been ICICI Bank. "Banks are the best proxy for growth," says Sipahimalani.

Proxies are necessary in a theme-based approach. Two other significant investments have been telecom company Bharti Airtel and direct-to-home TV company Tata Sky, both of which serve as indicators of the expansion of the middle-income consumers' category.

Sipahimalani says infrastructure in India is a growth sector and not a utility as it is elsewhere. His description of infrastructure is unconventional. He divides it into two categorises - that of assets and enablers. Assets would include a company such as GMR Energy which owns electricity generation assets. An enabler would be, say, a cement company, which provides a key input for the entire infrastructure sector.

In infrastructure, Temasek is looking at the riskiest proposition - buying into companies in the sector.

"We are looking at equity-type returns," says Sipahimalani. Economic uncertainty, volatility in regulations and attendant problems do not faze Sipahimalani. He believes Temasek's patience will help it ride out troughs.

"Typically, we are long-term investors," he says. The company's track record seems to support the claim. Temasek still has exposure to 12 of 35 companies it inherited when it was set up in 1974 to manage the Singapore government's investments on commercial lines.

Do other long-term foreign funds in India also find infrastructure attractive?

"There are enough PE (private equity) funds which can hold on for 10 to 12 years," says Munish Dayal, Partner at Barings Private Equity. He says the difference between a sovereign wealth fund, which can hold on to an investment for a longer period, and PE funds, which typically invest for three to five years, is not the issue.

"The issue is more about government policies and actions," he adds, referring to the widely held view among investors that government decision-making in India has stalled. "The essence of the issue is: do you see first signs of a political will to make things happen," says Dayal.

Temasek is unlikely to be affected by short-term trends. The company, which routes some of its investments into India through Mauritius, was unperturbed even by recent developments in India's taxation rules, which had most foreign investors fretting.

"It's not something that induces anxiety for us," Sipahimalani says.

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