AT Capital- Press

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AT/Cairn tie up for Europe retail drive

By By Paul Norman - Thursday, September 08, 2016 14:16 for www.costar.co.uk

Private Asian investment firm AT Capital Group has joined forces with asset and investment manager Cairn Real Estate, the Dutch subsidiary of German asset and investment manager MPC Capital AG, to create a European retail investment business.

AT Capital will provide the new joint venture company with investment capital, while Cairn Real Estate will deliver operational expertise and local market knowledge.

The investment strategy will initially focus on “basic need” real estate in the Netherlands and Europe, such as supermarkets and drugstores.

Through their joint venture company, Retail Assets Investments B.V., AT Capital and Cairn Real Estate have completed the acquisition of a portfolio of 10 grocery-anchored retail assets for local supply in the Netherlands for €60m.

The portfolio, with an occupancy rate of 98%, has a gross retail space of circa 27,500 sq m and tenants that include supermarket chains such as Albert Heijn, Jumbo and Aldi. In addition to the acquisition, AT Capital Group and Cairn Real Estate have launched new joint venture company, Dutch REAM B.V., which will operate as the asset manager for the property portfolio.

Deepak Mawandia, Chief Investment Officer and Director of the AT Capital Group, said: “We are pleased to be working with Cairn Real Estate in this new retail investment venture. The retail property market in the Netherlands offers great potential. Since 2008, supermarket revenues in the Netherlands have grown by around 2.5 % per annum which we expect to continue. Our joint venture with Cairn Real Estate fits very well with our overall investment strategy, enabling us to partner with an existing player with a clear vision and in-depth knowledge of the local market. Our recent portfolio acquisition is a great start for our latest investment venture.”

Maarten Briët, managing director at Cairn Real Estate, said: “We are very pleased to be partnering with AT Capital, one of Asia’s leading private investment firms, and the launch of our joint investment structure and asset management company. The joint venture is an excellent example of our strong position as full service multi-asset and investment manager.” “It is illustrative of the way we initiate, structure and manage investment projects in commercial real estate for institutional investors and family offices globally,” adds Pieter Akkerman Managing Director at Cairn.

Relationship banks ABN Amro and ING provided finance for the acquisition. AT Capital and Cairn Real Estate were advised by Osborne Clarke, PWC and Search. CBRE advised the seller.

pnorman@costar.co.uk



An Interview excerpt of Arvind Tiku with Sharanjit Leyl , BBC World News ( Asia)



AT Holdings Invests in Indian Renewable Energy

AT Holdings Pte Ltd, a Singapore based US$2.5bn investment fund, is expanding its renewable energy portfolio by investing an additional US$40 million in the Orange Group, headquartered in New Delhi, India.

The companies within the Orange Group are wholly owned Indian subsidiaries of AT Holdings, focussed on the Indian renewable energy space namely biomass, wind and solar energy projects.

The Orange Group currently has an operating wind energy portfolio of 105 MW and another 170 MW of wind power projects at an advanced stage of development across the states of Rajasthan, Madhya Pradesh and Maharashtra. In addition, the Orange Group has a pipeline of over 600 MW of greenfield wind power projects at various stages of development. The group also operates two 10 MW biomass power projects in Karnataka.

The Orange Group plans to become one of the leading renewable energy companies in India and is targeting 1,000 MW of power generation capacity by 2017.

The Indian subcontinent is rich in renewable energy resources and has significant potential for harnessing sustainable power. It possesses the natural resources and the geographic and climatic conditions necessary to support significant wind and solar technology projects.

AT Holdings is bullish on the Indian renewable energy space and will continue to support the Orange Group in its vision to become a key player in the Indian renewable energy sector.

AT Holdings, promoted by Indian businessman, Mr. Arvind Tiku, has a 20 year track record of building successful businesses in renewable energy, residential and commercial real estate, hospitality, natural resources and engineering and construction.

If you require any further information please contact Deepak Mawandia at AT Capital at the following address: info@atcapital.com.sg

COMMUNICATIONS

Orange Renewable signs Power Purchase Agreement With SECI

Orange Renewable signs Power Purchase Agreement with Solar Energy Corporation of India (SECI) to develop a 100 MW solar power project in Maharashtra.
New Delhi, 14th April 2016:
Orange Renewable, a 100% subsidiary of Singapore based AT Holdings Pte Ltd, has signed Power Purchase Agreement with Solar Energy Corporation of India Limited (SECI) on for development of 100 MW solar power project in Maharashtra under JNNSM Phase- II, Batch – III Scheme.

SECI has been designated as the nodal agency of GOI for implementation of MNRE schemes for developing grid connected solar power capacity. MNRE has revised the cumulative targets under National Solar Mission from 20 GW to 100 GW by 2021-22 which has given a big boost to the Indian Solar sector and has made India the preferred destination for investors.

Orange Renewable has won this contract through a competitive bidding process followed by online live reverse auction conducted by SECI on TCIL platform. In the reverse auction process only 8 bidders were able to bag the projects where Orange Renewable emerged as one of the largest capacity off taker in this bidding. Total tendered capacity was 450 MW and the projects fall under a Non-Solar Park Scheme. Orange Renewable will receive an average power tariff of INR 4.43 per kilowatt-hour for the next 25 years from commercial operation date of this project which is scheduled in 2017.

Speaking on the development, Naresh Mansukhani, Country Head (Solar) at Orange Renewable, said, "The agreement with SECI is the first footstep of Orange Renewable towards the company’s Solar Energy portfolio expansion strategy in India.”

Ashvini Kumar, Managing Director, SECI; Ramesh Kumar, General Manager (Solar), SECI and Ashman Gautam, Manager Business Development, Orange Renewable were present at the signing ceremony of this Power Purchase Agreement.

Wind Energy in India

The planet’s natural fuel sources including petroleum, coal and natural gas are being steadily depleted due to demand driven by rapid industrialization and globalization. With rising standards of living, per-capita energy consumption is increasing more rapidly than ever before. Accelerating climate change and concern about global warming has spurred the adoption of new and alternative energy sources over the past two decades. One alternative source gaining widespread adoption is wind power. Wind turbines make use of the natural wind in our environment and convert it into mechanical energy, which is in turn used to generate electricity.

Despite grid-connected wind-based power being in existence for almost twenty years in India, the industry is burgeoning in the country, especially when compared with developed countries. Despite that fact, India is currently the fifth largest wind power producer in the world. So far, 19,993 MW of wind power capacity has been installed, in part thanks to the efforts undertaken by the Central and State Governments that have provided rapid approvals to the projects. Even though India is the fifth largest producer in the world, there remains a significant potential to grow with private sector investment.

According to conservative estimates, India has a gross wind power potential of 1,02,000 MW which is mainly concentrated in the states of Andhra Pradesh, Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan and Tamil Nadu. Much like the country’s Jawaharlal Nehru National Solar Mission (JNNSM), the National Wind Energy Mission (NWEM) – India’s first government-funded wind energy endeavour -- is set to be launched in mid-2014. However, unlike the JNSM, the NWEM will not involve projects for bidding but will act as a facilitator to provide incentives to invest, regulate tariffs and ease land clearances.

A number of projects are currently underway to boost India’s capacity. Surajbari Windfarm Development (SWD), a wholly-owned subsidiary of Continuum Wind Energy, plans to invest approximately US$194 million to set up wind farms in Madhya Pradesh. The SWD aims to set up two wind farms with a total capacity of 170 MW in the state, to be located in the villages of Mamathekheda and Pingrala of the Ratlam and Mandasaur districts. By December 2015, Madhya Pradesh expects to have the capacity to generate 1900 MW of wind energy.

Suzlon, India’s leading wind power company and a key global player, sold the 240 MW Illinois-based wind farms it recently acquired to EverPower Wind Holdings. This was a part of its disinvestment strategy to hive off non-core assets and to use the net proceeds of the sale to further business growth in the sector. Another organization, Orient Green Power Company Limited (OGPL) has a considerable presence in wind and biomass energy in India and has recently achieved an operating capacity of 500 MW.

Orange Powergen, a midsized Indian alternative energy company with interests in hydro, biomass, wind and solar energy secured a US$ 40 Million investment from Singapore based-private equity fund AT Capital. Orange Powergen’s Wind Energy portfolio includes a 39.9 MW Wind Energy Project in Jaisalmer, Rajasthan and a 19.5 MW Wind Energy Project in Pratapgarh, Rajasthan; both commissioned in FY2013. Orange is also constructing a 100.5 MW Wind Energy Project in Mamatkheda, Madhya Pradesh, expected to be commissioned by FY2014 - 2015. Singapore-based AT Capital, headed by Indian businessman Arvind Tiku, is backing Orange Powergen and is bullish on the Indian renewable energy space. The fund has committed further allocation to Orange as projects are finalized.

In order to meet the rise in interest among public sector undertakings to set up solar and wind power projects, the Ministry of New and Renewable Energy is reviewing the feasibility of creating a separate scheme or policy for PSUs. However, there is time before this development could lead to possible fruition as it is currently only at the discussion stage. NTPC Limited has signed agreements to establish wind energy projects totalling 700 MW. It is aiming for a total capacity of 1000 MW through renewable energy sources by 2017 while Neyveli Lignite Corporation is soon set to commission a 50 MW wind farm and is looking to expand to 300 MW over the next two years.

All these developments solidify India’s place among its global counterparts as a frontrunner in wind power production; expertise it has also offered to extend to Nepal to help the country develop its own renewable energy sources.

Renewable Energy Investments

The planet’s natural fuel sources including petroleum, coal and natural gas are being steadily depleted due to demand driven by rapid industrialization and globalization. With rising standards of living, per-capita energy consumption is increasing more rapidly than ever before. The planet’s natural fuel sources including petroleum, coal and natural gas are being steadily depleted due to demand driven by rapid industrialization and globalization. With rising standards of living, per-capita energy consumption is increasing more rapidly than ever before.

Be it gasoline for vehicles, cooking gas for use in the kitchen or electricity to condition living environments, global energy consumption of has never been higher. It is critical that nations and corporations adopt renewable sources of energy to combat an impending energy crisis. Renewable energy is generally defined being derived from resources which are naturally replenished, including wind, rain, solar, waves and geothermal heat.

Harnessing renewable energy has multiple upsides:

Environmental benefits: Renewable energy technologies are clean sources of energy and have a much lower environmental impact than conventional energy technologies, helping reduce the impact of global warming.

Infinite supply: Renewable energy will not run out, unlike conventional fuel sources that have a finite supply.

Economy: Most renewable energy investments are spent on materials and skilled labour to build and maintain the facilities, helping create new jobs and fuel local economies, as opposed to forcing an economy to spend on expensive overseas fuel imports.

Energy Security: Strong renewable energy capacities enable a nation to preserve its energy security.

A report from Ceres, a non-profit organization and a thought leader in clean energy has indicated that in order to limit global warming to 2°C and avoid the ill effects of climate change, the world needs to invest an additional US$36 trillion in clean energy — an average of US$1 trillion per year for the next 36 years. Ceres has labelled this clean energy investment gap the Clean Trillion. Closing this gap will be a remarkable challenge, but it is achievable if businesses, investors and policymakers take proactive action in the right direction.

There has been a spike in investments in renewable and clean energy with a large number of nations and corporations announcing big ticket investments in the renewable energy space. China has been the world leader in adopting renewable energy aggressively with about US$54 billion in investments in renewables in 2013, followed by the U.S. with an investment of US$36.7 billion and Japan with an investment of US$28.6 billion. Whereas China installed 14 GW of electricity generation capacity from wind farms and 12 GW of solar power generating capacity last year, the U.S. installed less than 1 GW of wind power after a tax incentive for the wind industry expired. The U.S. installed a 4.3 GW of solar generation capacity in 2013.

Though the market share for renewables is on the rise globally, overall worldwide renewables investment has been declining for two consecutive years. Investments totalled US$254 billion in 2013, a fall of 11 % from 2012 and 20 % from 2011 when investments had peaked at US$318 billion, as per Bloomberg New Energy Finance (BNEF). The decline can be largely attributed to multiple factors, including a continued sharp reduction in the cost of photovoltaic systems, and the impact on investor confidence due to shifts in policy towards renewable power in Europe and the US.

There was less action in the venture capital and private equity renewable space with investments falling to US$4.3bn in 2013 – the lowest since 2005 – from US$6.4bn in 2012. The largest deal in the VC/PE space was a US$308.1m round for National Electric Vehicle Sweden, followed by US$151.1m for wind developer Greenko Mauritius. Other significant investments included the 681MW SunPower Solar Star PV project in California, costing US$2.5 bn and the 288MW Butendiek offshore wind project in German waters, costing US$1.9 bn. The largest in emerging economies was the 100MW Eskom Uppington solar thermal project in South Africa, costing US$818m.

The Asian subcontinent, especially India, saw significant project announcements in the wind and solar power space. An enormous 4000 MW ultra-mega solar power project in the western state of Rajasthan has been recently signed by the Ministry of Heavy Industries and Public Enterprises of India. The solar photovoltaic power plant will have an estimated life of 25 years and is expected to supply 6.4 billion kilowatt-hours per year. The renewable energy sector in India – led by wind energy – saw investments totalling around US$650 million in 2013.

In one of the biggest private equity investments in India's renewable energy sector, Goldman Sachs invested an additional US$135 million in ReNew Power, raising its total investment in the company to US$385 million. Greenko Group, a renewable energy company received a US$151 million investment from GIC. In addition, alternative energy company Orange Powergen received US$40 Million from Singapore based private equity fund AT Capital. Orange has an operating portfolio of 60 MW of wind power projects in Rajasthan and is currently developing 150 MW wind power projects in Madhya Pradesh. The company is also developing two 10 MW biomass-based power projects in Karnataka. Orange has plans to develop a 50MW solar power plant in Karnataka and is evaluating proposals to set up 30MW solar parks in Maharashtra and Gujarat. The Singapore-based AT Capital, promoted by Indian businessman Arvind Tiku, is backing Orange Powergen and is bullish on the Indian renewable energy space.

Although there has been a slight decline in investments in the renewable energy space in 2013, analysts view this as an aberration and expect the long term upward trend on investments in this field to remain intact. As non-renewable sources continue to deplete, large scale adoption of renewable energy will continue to gather momentum. It is heartening to see nations and corporations across the globe resolving to build renewable energy capacities to thwart the potential of an energy crisis.

Private Equity Opportunities in Indonesia

The ASEAN Business Outlook Survey 2014, published by the U.S. Chamber of Commerce, ranked Indonesia as the most attractive destination in the region for new business expansion, followed by Vietnam, Thailand and Myanmar.

Indonesia is emerging as a strong market for private equity investment. The years following the 2009 credit crisis have seen foreign funds increasing capital commitments and seizing M&A opportunities in the Indonesian economy which remains principally a domestic consumption driven market.

The single most compelling reason why Indonesia has been attracting the attention of international investment community is the country’s burgeoning middle class population which has been sustaining GDP growth of more than 6% per annum since 2010. This is forecast to continue, and as consumption increases, so will business activity, triggering opportunities for private equity investors.

Macroeconomic strength and a low public debt-to-GDP ratio earned Indonesia investment grade ratings from Fitch Ratings and Moody’s Investors Service in late 2011 and early 2012 respectively. Inflation rose noticeably in 2013 following an increase in government-controlled petrol prices, but the central bank expects this to fall back into its target range of 3.5-5.5% before the end of 2014.

Consumer-related sectors in particular have been the focal point of attraction for private equity funds in Indonesia. CVC Capital Partners’ partial sale of the US$ 700 million investment into Matahari Department Store in March 2013, at an attractive multiple of the buyout price, demonstrates how PE investments have reaped strong returns in the retail sector. Other consumer sectors that are high on the PE industry radar include food and beverage, telecommunications, media, pharmaceuticals and personal care. Despite this an important caveat to fresh PE participation is the issue of rising valuations. Valuations in the consumer space have rocketed, with local food and beverage companies commanding higher multiples even than multinationals such as Coca-Cola.

Healthcare and Education are sectors that will benefit from the growing population. Education, currently under-served by the state, is a sector where private investments can be allocated to build world class institutions and aid the country’s overall development.

Infrastructure is another sector where there is substantial demand for investment and plenty of opportunities to participate. With nine in ten passenger journeys and 50% of cargo traffic carried by road, stand-still traffic jams have become routine in Jakarta where the number of vehicles has tripled over the last decade. This problem has been compounded by the absence of long-term infrastructure projects such as the Mass Rapid Transit (MRT) system and the monorail. Under the nation's shorter term economic plan, the infrastructure investment target is up to US$150 billion over the next five years. Thirty percent of this investment will come from the government, with the private sector providing the remaining 70%; clearly a significant opportunity for private equity investments. The government’s larger plan includes constructing power plants that will supply 20,000 megawatts of electricity over the next 10 years and 1,095 kilometers of new toll roads to move goods faster across the archipelago.

However, like any emerging nation, Indonesia has its problems. Many businesses have highlighted issues such as corruption, unclear laws and regulations, poor Infrastructure and difficulty moving products through customs as inhibitors to doing business in Indonesia. There is also a shortage of highly skilled labor in the country. A primary area of concern is the lack of clarity in regulations and laws which are frequently changed or updated. Prolific deals like the acquisition of Bank Danamom by DBS Group Holdings fell through as new bank ownership rules changed only a year ago limiting DBS to a 40% stake when it was actually bidding for 99% of the bank.

The complex regulatory systems often adversely affects commercial activities and doing business to the letter of the law is challenging. In addition, powers vested in regional and local governments make licensing procedures unwieldy for businesses. Legal certainty is also a serious concern. The judicial system in Indonesia can be vulnerable to external influence which can put foreign funds at a disadvantage when seeking recourse in disputes with well-connected local firms.

However, these difficulties haven’t discouraged private equity investments. Recently, Indonesia focused PE fund, Northstar Group, which counts U.S. private equity giant TPG Capital as a shareholder, closed its fourth fund with a US$500 million capital commitment. The firm is aiming to invest around 70% of the capital in Indonesia, with the remaining capital to be allocated across the rest of Southeast Asia. It will be exploring investment opportunities within consumer and retail, financial services, natural resources and telecommunications industries.

The Indonesian market requires a cautious approach. The ideal approach for private equity is to scout for smaller sized deals, understand the market and then gradually increase their investment appetite. Going large at the onset may seem tempting but carries increased risks due to the inherent uncertainties common to developing markets. The smaller deal trend is perhaps best exemplified by KKR’s US$35 million acquisition of shares in PT Tiga Pilar Sejahtera Food, an Indonesian noodle maker. The average deal size for Northstar, which is now an experienced player in Indonesia, is around US$70 million. Also, transactions based solely on consumption and demographic dividends will be harder to come by, since much of the low-hanging fruit has been picked. Taking a deep dive into the mid-market segment will be the key to success in Indonesia, where small and medium-sized enterprises account for almost 60% of GDP.

What Indonesia needs is transformational private equity – funds which can not only inject capital but also provide thought leadership, new managerial impetus, influential global networks and stronger governance to companies, enabling them to boost operational efficiency and unlock upside potential. As management skills are still often inadequate in Indonesia, there is a strong business case for PE funds that can provide high touch management teams in addition to capital investment.

Today, Indonesia is a politically stable democracy. The country has enjoyed sustained periods of record economic growth and foreign investment and is the largest economy in Southeast Asia. Malaysia’s PE market is small by comparison, investments in Singapore are usually centered around government-linked companies, and Vietnam and the Philippines are still too immature to attract large PE investments. The focus of attention is naturally on Indonesia when compared with other emerging Southeast Asian countries. If the country succeeds in ironing out its current issues, significant private capital is certain to flood in.

Private Equity Trends in Indian Real Estate

Bangalore has emerged as the preferred destination for real estate investment by Indian private equity (PE). This is reflected in the sheer magnitude of PE deals in Bangalore during the first half of 2014.

The region has raced past the national capital Delhi and the commercial capital Mumbai in terms of PE deal values. Led by high demand for office space and steady demand for residential real estate, Bangalore saw PE investments in its real estate market jump nearly 20 times year-on-year to INR 2,005 crore in HY2014 from INR 103 crore in the first six months of 2013.

During the same period, Mumbai real estate attracted PE investments worth INR 1,140 crore, Delhi-NCR managed INR 580 crore, Pune INR 167 crore and Chennai INR 200 crore, according to property consultancy firm Cushman & Wakefield.

It is buoyancy in the commercial realty space which is attracting the bulk of PE investments. PE experts feel there is good availability of high grade investible leased office assets in Bangalore. Moreover, most of the commercial realty assets have high occupancy rates and provide stable yields of approximately 9 per cent, making them attractive to investors. While the realty markets in Mumbai and NCR command high values and high margins, Bangalore is the most stable with demand driven by end users. The churn in capital is also faster compared to other markets.

A few of the recent large transactions in the Bangalore real estate market include Piramal Fund Management's INR 100 Crore Non-convertible Debenture (NCD) transaction with Century Real Estate Holdings, Tata Capitals' INR 470 crore investment in Shriram Properties for a 15 per cent stake, and JP Morgan's INR 100 crore private investment deal with Vaswani group. Other notable PE funds seeking investment opportunities in the Bangalore real estate market include Milestone Capital Advisors, Motilal Oswal Private Equity, Xander, Shapoorji Pallonji and Blackstone.

Private Equity funds have been attracted by the increasing number of multi-national corporations (MNCs) choosing to purchase commercial realty rather than lease. MNCs have invested nearly Rs 2,500 crore in commercial real estate purchases in India in the past three years. Foreign MNCs contributed to about 43 percent to the total value of commercial office purchases, which was around INR 5730 crore, between January 2012 and March 2014, vindicating their long term commitment to the country. From a little over 90 million square feet in 2005 to more than 400 million square feet in 2014, the country's investment grade office stock has undergone a phenomenal evolution in its composition, structure and spread, backed by both private investments and government policy initiatives which have opened up the real estate sector for Foreign Direct Investments (FDI) since 2005.

With the introduction of REITS (Real Estate Investment Trusts) in the Indian real estate market, Private Equity funds as well as developers are building their asset base of stable rent yielding commercial real estate before participating in REIT listing. For instance, Private Equity giant Blackstone Group and its partner, Embassy Group, are building the groundwork to unlock value in their property holdings by setting up India's first real estate investment trust (REIT) and listing it on one of the country's stock exchanges. Blackstone and Embassy have a joint portfolio of more than 20 million square feet of commercial real estate assets in India, which is likely to value their REIT at US$2 billion. Assets worth around US$12 billion are likely to be listed in the next 2-3 years according to industry experts.

Bangalore-based RMZ Corp, a real estate developer backed by a large private equity investment from Qatar Investment Authority (QIA), is understood to be acquiring a 650,000-sq-ft IT Park in Phase IV, Gurgaon, built on 4.5 acres and located close to the international airport, for INR 800 crores. This is the latest in a series of large office space purchases by marquee global investors who are building their portfolio of rent-yielding commercial assets in India with a REIT listing on their agenda.

The Northern Capital Region (NCR), which is home to a large technology workforce, after Bangalore and Pune, is expected to see many more private equity transactions in its commercial real estate sector. The NCR real estate market saw PE transactions worth INR 1650 crores in 2013, almost double the PE investments in 2012.

Developing regions in the NCR such as, Noida, Greater Noida West, Yamuna Expressway, Bhiwadi, Gurgaon and the Northern Peripheral Region (popularly known as the Dwarka Expressway) have been attracting immense PE attention towards residential and commercial real estate space. This is evident by large recent PE transactions in the region such as the INR 400 crore investment by Singapore based PE firm Xander in realty firm Supertech. Supertech had earlier raised an INR 280 crore round from Xander in 2013 to fund its 100-acre township in Gurgaon. Similarly, Singapore based USD 2.5 billion AT Capital has invested in Gurgaon based Experion Developers which is building a premium condominium development project in Sector 112 of the Dwarka Expressway.

A few PE funds that held vintage portfolios have begun exiting their investments with handsome returns. Of the total institutional PE capital deployed until March 2014, nearly a fifth, amounting to US$6.9 billion, has been exited by PE funds. According to Jones Lang LaSalle, returns from Indian real estate for private equity investments made in 2006 stand at 1.1 times compared with the global average of 0.86 times. Performance in the last six years is even better at 1.34 times the investment value. According to Brookfield Financial, the Indian residential sector accounted for over 58 per cent of the exits and the office sector 24 per cent. Besides, about 85% of the exits were through promoter buy-backs. Since 2005, US$37 billion has been raised and deployed in the Indian real estate sector by institutional PE funds.

Private equity investment in the real estate sector has risen by over 200 per cent to INR 4,100 crore in the first-half of 2014 and is likely to cross Rs 12,000 crore by end of the year. Although this is less than the c. US$14 billion PE investments the sector witnessed in 2007 and 2008, it is clearly an encouraging sign. The Indian real estate industry has historically been under-financed as banks prefer not to lend to the sector. There is tremendous scope for PE funds to up their appetite in the country's burgeoning real estate market.

Apart from PE funds, many sovereign and pension funds are also committing funds to Indian real estate, including All Pensions Group, Abu Dhabi Investment Authority, Qatar Investment Authority, Canada Pension Plan Investment Board, State General Reserve Fund of Oman and GIC of Singapore.

The buoyancy in the Indian economy after the recent general election has seen PE interest in the real estate sector go up and this momentum is expected to continue in the next couple of quarters as market sentiment improves further.

Emerging Real Estate Markets in India

There has been a secular demand for homes in India, propelled by the country's demographic dynamics and consumption ability. As a result, residential real estate remains the focal point of the Indian real estate industry. India's residential real estate market suffered throughout 2013 and the dismal performance of the sector was most palpable in its prime cities.

The general sluggishness in the real estate sector was primarily driven by asset price inflation, which led to purchasing power and financial confidence taking a nosedive, while the RBI continued with its spate of hikes in interest rates.

This led to a sharp increase in the EMIs that home loan borrowers had to bear. Furthermore, the economic slowdown severely restricted the potential of most salaried people to switch to more lucrative employment opportunities and buy new homes, thereby weakening demand. On top several cost push factors like high input cost of raw materials and lack of low-cost bank finance forced real estate developers to hike prices, ultimately resulting in huge inventory built up and sluggishness in sales in the primary real estate markets such as Mumbai, Bangalore and Delhi. As a result of high real estate prices in prime cities, it is the tier-2 cities that are attracting steady demand and consumption.

The Confederation of Real Estate Developers' Associations of India (CREDAI) has identified demand from tier-2 (cities with a population between one and five million) and tier-3 cities (cities with a population less than a million) as an impetus for more favourable real estate solutions. With rapid land and infrastructure development in smaller cities and towns that are assisted by bank loans, increased earnings and enhanced overall standards of living, housing and construction demand will increase there.

Pune is a noteworthy example. Resurgence in employment-driven market sentiments and the arrival of several well-priced residential projects saw its real estate market witness a healthy demand for mid-priced residential properties throughout 2013. This continued through the first quarter of 2014. Private equity investments in Pune's realty space bounced back with a 300% jump to Rs 1,464 crore during 2013. Avenue Venture Capital invested of Rs 40 crore in Vastushodh Project's affordable housing project Anand Gram, marking the first private equity funding in the affordable housing segment. Similarly, IDFC Alternatives invested Rs 250 crore in Paranjpe Schemes Constructions Limited (PSPL)'s SEZ project Blue Ridges in Hinjewadi.

The National Capital Region (NCR) is another fast developing real estate destination. Most property sold in this region may remain uninhabitable for a long time as it is being purchased largely for investment purposes. Essel Finance recently invested US$7.5 million in Assotech's residential projects in the region and has also invested Rs. 60 crore in Delhi-based Parsvnath Developers' project based in Gurgaon. AT Capital, a Singapore based fund invested in Experion Developers, which holds vast tracts of land across India, especially in the NCR belt. The private equity transaction volume for the NCR in 2013 was more than double that of 2012 at about Rs 1,650 crore (US US$ 260 million), all of which was in the residential asset class, indicating a robust demand and consumption expectation.

Ahmedabad-Surat-Vadodara is another emerging tier-2 metropolitan cluster. While Ahmedabad is the largest city in Gujarat, Vadodara is a major industrial centre, playing host to a number of pharmaceutical and chemical manufacturers. Surat is known for its textile and diamond processing industries and is set to become an international diamond trading hub. The region is expected to embark on a steep growth trajectory with landmark projects such as the Delhi-Mumbai Industrial Corridor (DMIC) and the Gujarat International Financial Tec-City coming.

Cities in South India are another area of real estate interest. Southern states represent 20% of the country's total population and aggregate GDP of Tamil Nadu, Andhra Pradesh, Karnataka, Kerala and Pondicherry contribute nearly 22% of the GDP of all states combined. Emerging cities that have high real estate potential are Kochi, Coimbatore, Vishakhapatnam, Mysore, Trichy and Madurai.

By 2030, it's predicted that India will have 68 cities with population of more than 1 million, 13 cities with more than 4 million and six megacities with more than 10 million inhabitants. These cities will provide huge real estate opportunities for both developers and end consumers.

Top Real Estate Investment Zones in India

Several announcements presented by the newly-elected Indian government in the July 2014 budget have been welcomed by the country's real estate community. The real estate industry, which was weathering a downturn, is poised for a turnaround.

With the government announcing its policy intentions on REIT (Real estate investment Trust) and the pass-through status on tax issues, the sector is expected to witness significant capital inflow. A further annual exemption of fifty-thousand Rs in tax on interest on home loans augurs well for the country's vast number of salaried individuals who have invested in housing assets. Real estate developers have already begun to experience a rise in enquiries and new home sales across the country. The top real estate investment zones in the country are Mumbai, the NCR region, Pune and Bangalore.

MUMBAI
In the city of Mumbai, regions like Ulwe, Chembur and Wadala are pegged as upcoming hotspots for real estate purchases. In fact, an investment advisory report by Knight Frank listed these three regions as among the areas that will witness the most development in the country. With the Sea-wood urban-suburban railway network nearing completion, positive changes are already palpable given the connectivity it offers to the commercial hubs in the city. The proposed developments of a new international airport and the Mumbai Trans- Harbour link to connect South Mumbai to Navi Mumbai have together given the region hope for a bright future. Property prices have already seen significant appreciation over the last two years, with ample room for more growth as the proposed infrastructure projects surrounding the region are completed. The asking rate for residential properties in this area is around Rs. 5400 per sq. ft. With Line 1 of the Mumbai Monorail connecting Chembur and Wadala opening, property prices have already shown an upward swing, even though only the first phase has been completed. Phase 2 of the Monorail is scheduled to come online in March 2015, and it will further ease some of the transportation issues that currently plague the city. Premium residential offerings such as the New Cuffe Parade development by Lodha developers in the Chembur-Wadala belt offer luxurious living spaces at competitive prices and great access to the business hubs of South Mumbai via the Eastern Freeway and Bandra-Kurla complex via the Santacruz-Chembur freeway. There is considerable interest in this area, with other real estate developers upping the ante and purchasing large parcels of land for development. The asking rate for residential properties in Chembur is around Rs. 17,000 per sq. ft and those in Wadala are up around Rs. 21,000 per sq ft.

NCR
Construction activity on the Dwarka Expressway in the NCR region is currently under way, and is slated for completion in 2015, stimulating the residential and commercial real estate projects in the area. There has been a significant uptick in commercial activities in the region, with large corporations setting up infrastructure and creating employment opportunities. As a result, the demand for residential accommodation has risen rapidly as employees prefer to live closer to work. Property consultants, DTZ, calculate that average residential capital value on the Dwarka Expressway rose from Rs. 2,426 per sq ft in 2009 to Rs. 7,000 in 2013. The Dwarka Expressway is expected to receive more than 24,000 additional housing units between 2013 and 2018. Another real estate hotspot in NCR is the Noida Extension, which has attracted in excess of 50 builders and developers to construct residential properties to suit all segments of the forecast population. A conservative estimate states that more than 2.5 lakh houses will be ready in the next 2-3 years, triggering a sharp acceleration in private equity investments in real estate companies. Premium real estate developers with high integrity and proven expertise are being able to attract private investments. There have been a slew of private equity deals in the Delhi NCR market with Landmark Holdings investing in Unitech's Gurgaon Nirvana project, Xander investing approximately Rs 100 crore in an upcoming project by Delhi-based developer Prateek Group, Milestone investing Rs 50 crore in a Gurgaon project by Assotech, and Singapore-based private investment firm AT Capital investing in Experion Developers. Buyers are showing confidence in purchasing these properties as institutionally-financed developments are likely to be completed on time and with reliable paperwork.

PUNE
The city of Pune in Maharashtra is also witnessing strong demand for both housing and commercial real estate. The city is a hub for education and a large number of ITES corporations have set up large scale IT parks in the region as the city offers well educated staff, affordable real estate and adequate civic infrastructure. Ravet, strategically located close to the real estate hotspot of Hinjewadi at the end of the Mumbai–Pune expressway, is an upcoming real estate destination that has been witnessing significant residential demand. Ravet scores well on the affordability index when compared to the relatively higher real estate prices in Pune. Investors as well as end users are betting on its strategic location and are hopeful that its value will appreciate considerably over a period of five to seven years. The asking rate for residential properties in this area is around Rs. 5100 per sq. ft. Hinjewadi, a large mixed-use development, lies on the expressway connecting Pune to Bangalore and Mumbai. More than 3.5 lakh working professionals commute to the IT Park at Hinjewadi on a daily basis, where their offices are located. A major concern with Hinjewadi has always been the traffic congestion and developers working on properties in Hinjewadi are building integrated townships that offer facilities like healthcare, shopping and entertainment nearby. The proximity to IT hubs in Hinjewadi is also working in the favour of another micro-market located nearby called Wakad. Boasting good connectivity to Pune and Mumbai, low prices and impressive civic infrastructure, the real estate potential of Wakad has also made it an alluring investment destination. The asking rate for residential properties in Wakad is around Rs. 5800 per sq. ft.

BANGALORE
Bangalore is also not far behind with areas like Hebbal and KR Puram becoming attractive real estate areas for investors across the country. The residential market in Hebbal has gained popularity with the opening of Bengaluru International Airport. North Bangalore is expected to emerge as the new Central Business District (CBD) of Bengaluru within the next decade and Hebbal is expected to be its biggest beneficiary. The asking rate for residential properties in Hebbal is currently around Rs. 6000 per sq. ft. KR Puram or Krishnarajapura is another suburb of Bangalore that is witnessing real estate investment attention. Projects in this region are being developed on large land parcels that facilitate high rise premium developments with plush amenities. Factors like connectivity to arterial roads and close proximity to business zones have helped develop its real estate potential. The asking rate for residential properties in the region is currently around Rs. 3200 per sq. ft. The government recently announced the creation of 100 smart cities in the 2014 budget. The intent clearly reflects the growing need for infrastructure development that will not only generate massive employment opportunities and sustainable living environments but also reduce the untenable influx of population into the over-crowded metropolitan centres across the country. Real estate developers as well as investors are optimistic about this initiative as it will potentially throw open huge investment opportunities.

The 2014 Indian Budget

After gaining a reputation for optimistic growth estimates, the Indian government is showing signs of moderation. After only a few months in office, the Modi government’s budget forecasts for growth and disinvestment appear practical. The government is supporting growth enablers like investments, consumption and government spending with an eye to boosting GDP growth from 5.4 to 5.9 percent through 2014-15 to between 7 and 8 percent over the next 3 to 4 years. The US$9.7 billion divestment target set out in the budget also looks attainable given the buoyancy in Indian stock markets and investor appetite for premium government holdings.

Budget Ambitions and Achievements….always a Gap

indian budget 2014

Major policy reforms announced in the budget include raising the limit on direct foreign investment in the insurance and defence sectors from 26 to 49 percent and the introduction of real estate and infrastructure investment trusts. However, despite predictions, the government didn’t announce a goods and service tax (GST), which would deliver a direct boost to the GDP.

The budget also announced large ticket Government spending proposals, including a 134.5 billion rupees capital infusion to state-run banks over 2014-15, as well as 2.29 trillion rupees for defence spending, 378 billion rupees investment in national and state highways, 50 billion rupees to enhance warehousing capacity to improve logistics and supply chain mechanisms in the country, and 70.6 billion rupees to create 100 "smart cities" to boost real estate and infrastructure. The government also allocated 100 billion rupees of private capital for start-up companies with the aim to encourage entrepreneurship and to incubate world class products and services, 40 billion rupees for affordable housing and 80 billion rupees for rural housing schemes. The emphasis on infrastructure development is laudable as that is one of the key factors that the country desperately needs if it has to secure a consistent 7 percent to 8 percent GDP growth rate. The budget also recognised the need to step up private and public investments in the agriculture sector for India, which has made the country largely self sufficient in providing food for the growing population.

The renewable energy sector has received a shot in the arm via excise duty exemptions for solar equipment. Products exempted include EVA sheets, solar back sheets, solar tempered glass (used in the manufacture of solar photovoltaic cells and modules) and flat copper wire for the manufacture of PV ribbons.

There has also been a reduction in excise duty from 12 to 6 percent in footwear that fall in the price range of 500-1000 rupees per pair. Footwear that costs less than 500 rupees will continue to receive exemption. In what could come as a blow to industry players involved in steel and machinery, the custom duty levied on imported flat-rolled stainless steel products has been raised from 5 to 7.5 percent.

India has moved in the right direction and has succeeded in winning back the confidence of global investors. This budget takes the positive investment climate a step further by ensuring a re-rating in earnings over the next 2-3 years on account of its emphasis in critical sectors like infrastructure, housing, agriculture, mining and power.

The budget has taken the middle path: it is populist while fortifying and strengthening investor and business sentiment. However, the real litmus test will be in the form of the action that the Government takes in the days ahead to ensure that people’s expectations and hopes of the country regaining more inclusive growth, are met.

Private Equity Investment Environment in Vietnam

Vietnam is one of the fastest growing economies in Southeast Asia. The country is listed in Goldman Sachs’ Next Eleven (N-11) list as having high potential to become one of the world's largest economies in the 21st century, and in JP Morgan’s Frontier Five list which recognises frontier markets that are worthy of consideration for global investment.

Labour-intensive manufacturing companies which are looking to diversify away from China have set their sights on Vietnam. Factors such as access to abundant low cost labour as well as a high youth demographic with growing disposable income, are encouraging businesses to raise their investment exposure in the country.

The global share of Vietnamese exports has increased on the back of growing domestic and foreign investment. While foreign investment is absolutely essential in order to sustain growth, domestic investors continue to form a sizeable chunk of the country’s overall corporate investment. In the future, domestic investment will need to raise efficiency in order to reduce dependence on foreign direct investment. To achieve this the government’s monetary and fiscal stimulus is designed to tackle any fall in external demand brought about by an international financial crisis. Future public investment will largely be focussed on specific industries and high-performing regions in the country.

Whilst the recent anti-China riots and attacks on foreign owned plants may impact short-term economic growth this is expected to be limited. Prior to the turmoil total tourist arrivals to Vietnam in 2014 were up by 26.1%. This figure is expected to slow down before showing signs of normalisation.

Long-term impacts could be felt in economic sector where Vietnam shares close and historical links with China. Rubber, crude, coal and fruits, which form the bulk of the commodities exported to China, accounted for 11% of total exports in 2012, whilst China is Vietnam’s largest import source for fabrics, yarn and machinery.

A study conducted by consultants Grant Thornton, found that the Retail Sector, Food and Beverage, Real Estate, Hospitality and Leisure sectors appear to be the most attractive for Private Equity investment in Vietnam. Rapid urbanization and a large youth population coupled with enhanced living standards are the key triggers fuelling retail growth in the country, making that sector the most attractive for Private Equity Investors. Consumer demand among Vietnam’s 90 million citizens and the potential to export products regionally put the Food and Beverage sector as the second-most attractive investment bet. In one of the biggest ever Private equity deals, last year, private-equity major KKR agreed to pay $ 159 million for a stake in Vietnamese fish sauce maker Masan Consumer Corp. KKR, founded by Henry Kravis, is betting that Vietnam’s young population and growing middle class will help it generate significant returns over its investment horizon. TPG Inc. and BankInvest, a Danish investment fund, had earlier bought a US$ 50 million stake in Masan Group in October 2009. The acquisition by KKR, values Masan at $ 1.6bn, making it the second largest private equity deal in Vietnam to date.

Similarly, the Real Estate sector continues to attract Private Equity interest buoyed by the country’s young median age and a strong economy which is forecast to achieve 5.8% growth in 2014. Investors have shown great enthusiasm for a draft legislation which would allow much wider foreign ownership of property in Vietnam. In May 2013, last year, a consortium led by private-equity giant Warburg Pincus, bought a US$200 million stake in the retail property business of Vingroup, the country's largest private real-estate company. Betting on the country's "favourable long-term economic outlook", rapid urbanisation and growing middle class, the deal marked Warburg's first investment in Vietnam, and it also marked the largest initial investment to date in a Vietnamese company by a global private equity firm.

There is now a clear indication that Vietnam has climbed up the production ladder in electronics and accessories, mobile phones and parts, computers and automobile parts. Export of mobile phones and parts is estimated to have reached US$18 billion in the first 10 months of 2013, surpassing even garment exports. This is the result of significant foreign direct investment over the past five years.

Large corporations have been making substantial investments in setting up manufacturing units in the country to take advantage of the cost effective manpower and other conducive economic factors. For example, Korean conglomerate Samsung has opened up factories in Vietnam which are now producing about 25% of their global smart-phones, a figure which will rise towards 40% in the next 12 to 18 months.

Similarly Computer giant Intel Corporation has also taken a long term view on the country and made substantial investments. Intel Products Vietnam's factory opened in 2006 and began assembling and testing semiconductor components in 2010. It achieved over US$1.8 billion in export turnovers last year. The factory has disbursed around 45% of the $1 billion investment Intel set aside in 2006. As of June 2014, the factory has provided more than 1,000 jobs and attracted 80 component providers, including Vietnamese ones. Intel plans to produce 80 % of CPUs for the world market in Vietnam by 2015.

All this leads to the consensus view that there are ample investment opportunities in Vietnam, although there are also signs of emerging challenges to private equity investment in the country.

Corruption, Government red tape, Infrastructure and the regulatory system continue to be areas of major concern for private equity investors in Vietnam. Corruption is rated as the prime concern among investors. Following the Anti-corruption law adopted in 2005, the Vietnamese government has been trying to fight corruption but progress is slow. The failure to curb corruption has been attributed to policy implementation gaps and a lack of enforcement. In addition, foreign investment is subject to many unclear regulations which cannot be legally guaranteed. The judiciary is subject to political influence and commercial cases often take years to be resolved.

Another challenge faced by PE Investors is the difficulty in finding good quality deals due to a lack of available corporate and market data. It is also understood that promoters of Vietnamese businesses often fail to disclose critical issues affecting their businesses until the due diligence has already commenced resulting in promoters giving away additional warranties to investors. This eats up time and creates mistrust. Disparity in valuation expectations between potential business partners is also common.

There are other issues which need to be addressed. Vietnam needs to liberalise trade barriers via free-trade agreements such as those with South Korea and the European Union. The country also needs to enhance its logistics infrastructure and consciously work towards eliminating the severe shortage of skilled labour by taking into account recommendations in The World Bank’s Vietnam Development Report 2014. Other imminent tasks which lie before the country include working on and improving links with foreign companies whilst increasing supply chain management capabilities.

Every emerging nation has its own share of growing pains and has to go through a cycle of investment and consumption on the journey towards economic development. Vietnam, with its positive growth outlook driven by a young, cost-efficient, rapidly growing and technologically savvy manpower, is on the cusp of taking a major step towards economic maturation. The government is committed to liberalizing the economy and to introducing reforms based on free market principals. The promotion of foreign investment is one part of the country's development strategy. To achieve this the government has been working on changes to its judicial system, creating more incentives and taxation policies for foreign investors and trying to respect its commitments as an international citizen. Furthermore, Vietnamese efforts to maintain social and political stability whilst developing its investment activities are also playing a crucial role in increasing investment in the country.

Towards a revitalized India : What the Modi government must do to boost GDP

The new BJP government rose to power with a decisive mandate built largely around the party’s development agenda. Since the historic win, all eyes have been fixed on the newly installed Government’s initial moves. With Prime Minister Narendra Modi’s ten-point agenda centred on promises including unblocking stalled investments in power, road and rail projects people are now closely tracking the execution of policy promises.

What the new Government needs to correct.

Recently human and capital resources have been inefficiently deployed. The rates of savings and investment have dipped and their mix has depreciated. High inflation has forced many households to buy gold, shifting money away from the banking system where it can be effectively managed. Private sector investment is also in crisis as a mixture of bureaucracy, excessive leverage, incompetence, misgovernance and corruption has led private corporations to halve their investments as a share of GDP. What has been invested has often been tangled in red tape and graft.

Infrastructure is shabby and is decades behind China. Poverty is widespread and there is a gaping divide between the haves and the have nots. Only 3% of Indians pay income tax due to draconian tax laws and structures, leaving a hole in government finances. Agriculture is still monsoon dependent and feudal manufacturing contributes to only 15% of the national GDP. The Rupee is still weak, burdened by expensive energy (oil) imports. Wasteful subsidies have caused fiscal deficit to rise at an alarming rate. The Modi led government will have to reverse all of these ailments to justify its election campaign rhetoric “Acche Din Aane Waale hain” (“Good Days are about to come”).

In order to boost the country’s GDP, the Goods and Service Tax (GST) proposition needs to be closely examined. According to economic experts, GST has the potential of giving India’s economy a shot in the arm with a potential rise of two percentage points. A GST will help make India a single market by replacing the myriad local levies which currently exist.

However, there has been a considerable amount of opposition to a GST expressed by a number of state governments who fear losing fiscal controls. Given that GST implementation and fiscal reform requires changes to the constitution, such legislation will would require broad backing. If the words of a senior Congress party worker are to be believed, the Congress would wholeheartedly support this reform in Opposition. The BJP has already claimed that it will implement the GST in what it termed as an appropriate timeframe. Moves towards a GST by the newly-elected government will be closely scrutinised to see if the party can deliver on its promises.

The BJP-led government will also need to extend aid to state-run lenders who are suffering from a surge in bad loans resulting from a slowing economy, insurmountable delays in projects and a piercing rise in interest rates. Any increase in bad loans will negatively impact economic recovery. Stressed loans in India now comprise nearly 10% of all loans. While $1.89 billion has been earmarked in February’s interim budget to tackle the problem and help the financial sector meet key ratios, experts and analysts say the amount allocated is far from enough. Recapitalising state-run lenders will cost up to 5% of GDP and will mean fighting the bureaucracies that run them and the powerful industrialists sitting on bankrupt projects that need to be written off.

The new Government should also focus on making India a global hub for labour-intensive manufacturing. Japan, South Korea and China got wealthier by employing unskilled farmers in factories. There is a huge opportunity for manufacturing in India since labour costs are rising in China and Japanese firms are shifting production from China because of military tensions. In addition, the Indian Rupee has fallen, making Indian workers even more globally competitive. The government needs to take advantage of this opportunity.

Infrastructure is another area which requires urgent attention. Given the state of economy, the case for both power projects and roads is obvious. Upgrading land acquisition procedures, establishing new mining regulations and faster environmental clearances are the top priorities. Building 100 smart cities is another intelligent initiative being proposed by the Government. This will not only reduce the migration of rural populations into existing metro centres but also generate employment and more equitable growth across the country.

In its manifesto, the Bharatiya Janata Party stated that it would seek increased fiscal discipline without impacting the availability of funds for development. With subsidies costing approximately 2.2% of India’s GDP in 2013, the BJP finds itself walking a tightrope. The government needs to carefully assess how it plans to subsidise basic essentials to meet its aim of containing fiscal deficit without reducing the party’s popular support.

With the formation of an Entrepreneurship Ministry for the first time and new emphasis on educational initiatives, the Government has already shown the importance it places development goals and, more importantly, its goal of making India’s large workforce skill-ready by 2020. The Government has in the past expressed an inclination to reform labour laws in a bid to create 10 million new jobs each year.

The stock market in India has been hitting new highs since the election of the BJP party. Business sentiment is on the rise and many corporations and financial institutions have indicated new willingness to increase investment. With its broad ranging plan for development the central plank in the government’s election success the country is watching closely to ensure execution meets strategy.

Asian Oil and Gas Industry Insight

The Asia-Pacific region is soon projected to lead the world in terms of economic growth. The region is also likely to continue to drive global energy demand in the years ahead. According to an offshore oil and gas research report conducted by Infield, the Asian market is forecasted to see a 54% increase in expenditure for offshore oil and gas infrastructure over the next five years, with South East Asia continuing to drive demand in the region.

Although, as consultants Wood Mackenzie estimate, Southeast Asia’s liquids production is declining and expected to drop from an estimated 879 million barrels of oil equivalent (boe) in 2013 to 838 million boe in 2018, gas production is set to grow at an annual rate of 2.5% from around 1.25 billion boe in 2013 to 1.45 billion boe by 2018.

Wood Mackenzie estimates that Southeast Asia holds about 60.92 billion boe in commercial and technical oil and gas reserves, while total yet-to-find (YTF) volume is estimated at 14.6 billion boe, of which liquids comprise 5.5 billion boe and gas 9.1 billion boe.

The bulk of the region’s recoverable reserves are located in Indonesia and Malaysia, which contribute 29.55 billion boe (48%) and 15.41 billion boe (25%), respectively.

Malaysia

China and Malaysia have been the key drivers of offshore capex in recent years, and Malaysia is forecast to continue to spend heavily in this regard. Twenty-four new discoveries were made in Malaysia in 2012 alone.

Malaysia has been using a combination of innovative contracts to promote development of marginal fields, enhanced oil recovery techniques to get more out of its large but aging fields, and floating liquefaction technology to monetize stranded gas fields. All this has resulted in boosting its hydrocarbon production which was in a state of decline only a few years back. To further buoy the sector in Malaysia, the Malaysian government has introduced favourable taxes and non-tax incentives for downstream businesses, which is anticipated to have a positive flow on effect to upstream activity.

Indonesia

Indonesia’s long-established oil and gas producing basins – Sumatra, Java and East Kalimantan are well explored, but the country still holds extensive oil and gas resources. According to Wood Mackenzie, Indonesia is estimated to hold about 3.67 billion boe of YTF reserves in the eastern basins, where large areas, both onshore and offshore, remain relatively unexplored.

Factors such as remoteness, large size, infrastructure deficiency and harshness of terrain make oil and gas exploration in this region challenging. Although deepwater exploration in the region is yet to see any encouraging results and ten international companies, having spent $1.65 billion over 2009-2012, failing to find commercially viable hydrocarbon reserves, the region still cannot be written off. There are areas which remain unexplored. What is needed is a more conducive regulatory climate, clarity on domestic market obligations (DMO) (DMO is the quantum of oil and gas production that the contractor has to allocate to the local market; generally set at 25%, but can go higher as well), appropriate incentives and adequate data points on the acreage to truly optimize Indonesia’s deepwater potential.

Vietnam

Vietnam has also increased exploration by moving into more challenging locations like the Song Hong Basin and the frontier Phu Khanh Basin. Italian Oil Company Eni and KrisEnergy are jointly developing two blocks in these new locations where they expect to unlock very large fields. Wood Mackenzie estimates that Vietnam holds about 4.78 billion boe of total remaining reserves, 62% in gas. Wood Mackenzie further estimates total YTF potential in Vietnam to be at 2.43 billion boe of liquids and gas. A large portion of Vietnam’s gas reserves has remained undeveloped on account of historically low gas prices and a lack of adequate infrastructure.

Myanmar

Myanmar is currently the poster boy for E&P activity in South East Asia, given its vastly unexplored terrain, growing domestic demand for energy, and proximity to neighbouring markets which include Thailand, China and India. Myanmar’s energy Ministry estimates the country holds 17.5 Tcf of gas reserves and 3.2 billion barrels of crude oil. Offshore, Myanmar is principally dominated by gas, although little exploration has taken place so far. Most of the shallow offshore is largely under-explored whilst none of the deep offshore areas have been explored yet. There is significant enthusiasm for Myanmar’s prospective returns given the high rate of success from relatively little exploration thus far. Although there are several challenges including lack of financing, poor technical equipment, and the availability of skilled manpower, the Government of Myanmar is determined to take steps to address these concerns and help kick start the industry.

China

China has been adding an estimated 1 million-1.2 million b/d of refining capacity over 2012-2013 and is looking to enhance its downstream segment by an average of 1 million b/d annually between 2014-2018. Chinese nationwide refinery operating rates have averaged 77% in 2012 and 79% in 2013. There is a likelihood of utilization rates drifting lower on account of increasing refining capacity. Notwithstanding, China is expected to keep enhancing capacity as a policy, in line with its aim to become energy self-sufficient. The country also has a restrictive export policy barring a few Sino-foreign joint venture projects. However, whilst refining capacity grows unabated, there has been a moderate fall in consumption.

India

India has always been a leading energy consumer and as a result, the country constantly seeks to match an ever-increasing demand. During FY 2013–14, total consumption of petroleum products in India was 158.2 million tonnes (MT). The country had total reserves of 1354.76 billion cubic metres (BCM) of natural gas and 758.27 million metric tonnes (MMT) of crude oil at the end of FY 2012–13. By 2015–16, India’s demand for gas is expected to touch 124 MTPA, as per projections of India’s Petroleum and Natural Gas Ministry.

Indian NOCs (National Oil Corporations) have embarked on massive investment in the sector. Indian Oil Corporation Ltd (IOCL) through its wholly owned affiliate IndOil Montney Ltd, Canada, signed transaction agreements with Progress Energy Canada Ltd and PETRONAS Carigali Canada BV to acquire a 10 per cent stake in Progress Energy Canada’s LNG natural gas reserves in northeast British Columbia, as well as the proposed Pacific NorthWest LNG Ltd (PNW LNG) export facility located on Canada’s West Coast.

In other major recent industry developments:

  • GAIL (India) Ltd has entered into an agreement with Japan-based Chubu Electric Power Co to seek collaboration in the area of joint LNG procurement.
  • Reliance Industries Ltd (RIL) has been awarded two offshore blocks, M17 and 18, in Myanmar’s offshore block bidding round of 2013.
  • Prize Petroleum Company Ltd, a WOS subsidiary and upstream arm of Hindustan Petroleum Corporation Ltd (HPCL), has entered into a sale purchase agreement with M/s AWE, Australia to acquire 11.25 per cent stake in T/L1 license and 9.75 per cent stake in T/18P permit for a total consideration of US$ 79.66 million.

The Indian government has also taken prudent steps, by way of its’ Cabinet Committee on Investments (CCI), by clearing projects worth US$ 1.32 billion in the sector in December 2013. These projects involve companies such as Chennai Petroleum Corporation Ltd (CPCL), IOCL and HPCL. On the back of these measures India’s overall expenditure is expected to increase with its Pipeline and Fixed Platform markets likely to be the driving force behind these high capital expenditures.

Asian Outlook

Asia will continue to play a significant role internationally in the oil and gas industry. Given the expected increase in energy demand from developing countries, the region should see increased levels of offshore oil and gas activity.

Asia is characterized by large areas of shallow water, relative to other regions of the world, where fixed platforms are preferred. This is particularly the case with Malaysia and China where the fixed platform market will see the highest levels of growth in the region, according to experts. The entire region of Southeast Asia is expected to lead fixed platform expenditure. India and Malaysia are expected to lead investments for offshore pipelines.

Rising crude import reliance will encourage upstream acquisitions. Credit ratings agency Moody's expects Asia's growing reliance on crude oil and natural gas imports to fuel more international upstream acquisitions by National oil companies (NOCs) to secure long-term energy needs. Most Asian NOCs have comfortable headroom within their ratings for acquisitions, despite sizeable overseas investments over the past year. NOCs will continue to be the main focus of investment in the region, with IOC’s trailing close behind.