Infrastructure as a Cornerstone for Growth: Bonding the Future

Red Ribbon Asset Management has an innovative approach to investing in Growth Markets: identifying projects that combine maximum potential for asset growth with measurable impact on communities and the wider environment, and its choice of India as a cornerstone for that strategy is no surprise.

Take, for example, recent trends in infrastructure on the subcontinent.

IRB Infrastructure Developers listed a new model Infrastructure Investment Trust on the Bombay Stock Exchange this month and it will make key segments of India’s Public Works Programme available to private investors for the first time; and that’s not all, because the newly listed bonds are currently generating double-digit yields which makes them an important bellwether for the future of the Indian Economy as well.(www.bloombergquint.com/.../irb-infrastructure-will-be-the-first-to-list)

As with any Bond, the IRB Notes are priced primarily by reference to expected future coupon growth compared with current interest rates, so a double-digit yield is a huge vote of confidence not only in the specific projects covered by the listing but also in Infrastructure across India as a whole; and given Infrastructure is a key turbocharger for growth in any economy, the success of the IRB listing is a vote of confidence in the future of the Indian Economy as well. No surprise then that last month’s IMF Projections upgraded growth in GDP on the subcontinent to over 8% for the coming year.

IRB’s listing will raise in excess of 50.4 Billion Rupees ($786 Million) in a Fund which will own and operate six toll roads across five Indian States; and the proceeds of the offering will substantially be used to retire 33 Billion Rupees of existing Bank and other Senior Debt across the Group, signaling that arrangements of this type are increasingly seen as a critical financing tool in Growth Markets where conventional leverage sources are proving harder and harder to source. The Infrastructure Bond is becoming a model for future projects, building on the existing REIT (Real Estate Investment Trust) platform.

Real Estate Investment Trusts are exempted from dividend distribution tax in India which has made them a popular vehicle for income generating real estate assets, substantially driving the startling recent growth in the Indian property sector(www.indiainfoline.com/.../what-reits-real-estate-investment-trusts-mean-for-indian-real-estate); and now that they are to be joined by Infrastructure Investment Trusts which between them they are expected to raise more than 500 Billion Rupees in the next year according to last month’s report from CRISIL. Sterlite Power Transmission and the ubiquitous Reliance Infrastructure (www.rinfra.com/) are both expected to offer Infrastructure Trust Listings later in this year.

India’s future as a Key Growth Market looks secure.

And through its Fund Management arm, whose specialist teams include market leaders in the Indian Real Estate Sector, Red Ribbon is already tapping into those trends, particularly through its investment in Modulex (www.modulexglobal.com/aboutus.html) which prefabricates steel framed units: quick to roll out, environmentally friendly and capable of accommodating just about anything from a hospital to a home and everything in between.

It is a perfect example of Red Ribbon Fund Management’s commitment to Impact Investment.

Production and assembly processes are not seen as a disjoined series of economic outputs but are treated instead as an organic sequence, interacting constantly with the environment, the local community and the wider public; and as the Project develops, the business adapts as well, constantly seeking to reduce negative impacts. For example, careful attention is given to how the components of the Units will be used at the end of their service life as well as the capacity of the assembly process to create employment in the local community. Because businesses that successfully manage their exposure to disruptive ESG Factors in this way are not only reacting to challenging conditions, they are benefiting from them as well.