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CPPIB sees India’s retail sector gearing up for a long period of growth, spurred by its burgeoning middle-class populationReuters

International retailers are looking to India's emerging middle class to spur sales growth, and Canada's largest pension fund is taking notice.

The Canada Pension Plan Investment Board said on Wednesday it would launch a partnership to buy and build retail-focused developments across the country. CPPIB, which has also been busy investing in malls in China's developing economy, will partner with developer Phoenix Mills Ltd. in the venture. CPPIB plans to spend $330-million over all for a 49-per-cent stake in the investment platform.

The way CPPIB sees it, India's retail sector is gearing up for a long period of growth spurred by its burgeoning middle-class population. The fund's deal team has observed that international retailers are increasingly attracted to India, leading to solid demand for store space in good areas. Indian government indications that the retail sector will open up to more foreign companies has also given the fund added confidence in the investment.

CPPIB's plan to capture some of the money that new and existing retailers will spend in rent comes as the Canadian government is seeking closer ties to India with a free-trade pact and a bilateral agreement on foreign-investment promotion and protection that would provide Canadian investors with more "predictability and certainty" in India. India's high commissioner to Canada recently said he hopes Prime Minister Justin Trudeau will visit India before the end of 2017.

In the past few years, more international retailers have looked to India as a new frontier for sales. Swedish furniture giant IKEA, which has long sourced materials to make its products from the country, plans to open its first store in the country and expects to add many more. Mainstream and high-end fashion brands have also established a presence, including H&M and Burberry.

It's not only retailers looking beyond mature Western markets that has driven the trend. Last year, Indian Prime Minister Narendra Modi's government began to change the rules for foreign retailers and other investors in an effort to make the country easier to do business with.

"The Modi government reforms to attract global capital to India, including recent changes to international retailer entry requirements, has had a significant and positive impact on demand," said Andrea Orlandi, head of European real estate investments for CPPIB.

A recent report from Bloomberg indicated India could soon further ease the investment restrictions that have made the retail sector a particularly onerous one for outsiders. International retail heavyweights such as Amazon.com and Wal-Mart Inc. could be allowed to sell more goods in the country if they agree to some rules about how much of their wares are made in India, according to the report.

CPPIB opened its Mumbai office in late 2015 to hunt for deals, and to be a part of financing the country's expanding economy. Its investments so far have been in sectors such as telecom and infrastructure. The partnership with Phoenix Mills is its first investment in Indian real estate.

"We believe that India will be a leading source of global growth in the coming decades and that there will continue to be attractive investment opportunities for CPPIB," Mr. Orlandi said in a statement. "We look forward to expanding our venture with Phoenix Mills, an experienced retail operator and well-aligned partner."

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