The National Investment and Infrastructure Fund (NIIF), India’s first sovereign wealth fund, with a planned corpus of Rs 400 billion, was created in December 2015 by the Government of India, which has a 49 per cent stake in the total commitment. Axis Bank, ICICI Bank, the HDFC Group, and Kotak Mahindra Life Insurance Company Limited were among the first domestic investors in the NIIF’s early years. Today, the NIIF has a host of foreign institutional investors, such as the Abu Dhabi Investment Authority (ADIA), Asian Infrastructure Investment Bank, AustralianSuper, CPP Investments, PSP Investments, Temasek, and USIDFC, to name a few. The NIIF is poised to play a pivotal role at all stages of infrastructure development, from project design to implementation. Most intriguingly, it can operate as a policy-level bridge between the public and private sectors.
Developments in the past five years
Since 2015, one of the most significant and noteworthy achievements has been the emergence of the NIIF as a recognised and renowned manager of funds, with respect to both domestic and foreign user investors. India’s swift and efficient role in locating equity capital, particularly long-term patient capital, deserves appreciation and acknowledgement. The NIIF has made an equity investment commitment of over Rs 145 billion in the past five years. The NIIF was established as a Category II Alternative Investment Fund and now manages three funds with separate investment strategies: the Master Fund, the Fund of Funds, and the Strategic Opportunities Fund. According to the latest fact sheet released by the NIIF, its total assets under management exceed $4.5 billion across the three funds.
The Master Fund is an infrastructure fund investing primarily in operational assets in core infrastructure sectors such as roads, ports, airports and power. It is likely to follow a strategy of establishing sector-specific operating companies and aggregate assets to build a strong diversified portfolio. The Fund of Funds seeks to partner with experienced fund managers who have a strong track record and have demonstrated their ability to successfully execute their investment strategies. It invests in some of the most dynamic sectors in India such as climate infrastructure, middle-income and affordable housing, digital consumer platforms and other allied sectors. The Strategic Opportunities Fund is the largest India-focused private equity fund. It has been established with the objective to provide long-term capital to high-growth future-ready businesses in India and its strategy is to build a portfolio of large entrepreneur-led or professionally managed domestic champions and unicorns. The Strategic Opportunities Fund invests in large, scalable businesses in sectors that are fundamental, strategic, and key enablers of the India growth story such as financial services, food and agribusiness, and healthcare.
The NIIF, despite being in its early years, has made significant headway since its founding. Through its Master Fund, the NIIF collaborated with DP World for investing in the ports and logistics sector. It also partnered with the CDC Group and EverSource Capital to invest in the former’s renewable energy platform, Ayana Renewable Power. Later, it formed a joint venture, IntelliSmart Infrastructure Private Limited, with Energy Efficiency Services Limited to implement, finance and operate the smart meter roll-out programme of power distribution companies. The NIIF through its Fund of Funds anchored the Green Growth Equity Fund (GGEF), India’s first sustainability- and climate-focused fund, and has invested Rs 10.8 billion in the GGEF. The fund is set to become the largest climate-focused fund in emerging markets. These platforms have made further investments across sectors. For instance, Hindustan Infralog Private Limited (a joint venture between the NIIF and DP World) has made acquisitions in the PFT/ICD segment and the supply chain business, and is in the process of developing a free trade warehousing zone with an aggregate capacity of 2 million sq. ft.
Reflecting confidence in India’s infrastructure sector, the State Bank of India (SBI) and NIIF joined hands (through an MoU) in July 2019 to improve the availability of capital for infrastructure projects. This includes equity investments, project funding, bond financing, renewable energy support and takeout finance for operating assets.
Since its inception, the NIIF has been able to garner large foreign investments. A few of the big-ticket investments in the NIIF include $1 billion support from ADIA, $600 million commitment from CPP Investments, $400 million from Temasek, $100 million each from the Asian Development Bank and New Development Bank, and up to $1 billion each from AustralianSuper and Ontario Teachers’ Pension Plan. The NIIF, in December 2020, completed fundraising for its Master Fund. The fund achieved a size of $2.34 billion, exceeding its target of $2.1 billion.
The NIIF Strategic Opportunities Fund has established a debt platform consisting of a non-banking financial company (NBFC) infrastructure debt fund and an NBFC infrastructure finance company. Through its Strategic Opportunities Fund, the NIIF owns a majority position in both firms and has already invested Rs 18.99 billion across the platform. The Strategic Opportunities Fund acquired IDFC Infrastructure Finance Limited, which was renamed NIIF Infrastructure Finance Limited (NIIF-IFL). This was the first control transaction for the NIIF. The government, realising the importance of NIIF in infrastructure funding, approved a capital commitment of Rs 60 billion in the NIIF’s debt platform to be invested over the next five years. The debt platform includes Aseem Infrastructure Finance Limited and NIIF-IFL. With the fresh infusion of equity by the government, besides the equity already infused by the Strategic Opportunities Fund, and potential equity participation by the private sector, the debt platform is expected to raise enough resources to extend debt support of Rs 1.1 trillion to projects over the next five years.
During the year 2020, the NIIF joined hands with NTPC Limited to explore opportunities for investments in the areas of renewable energy and power distribution. The NIIF’s interest in renewables can also be seen in its $284 million capital commitment in Ayana Renewable Power, along with co-investments from the CDC Group and the Green Growth Equity Fund. The NIIF is the majority shareholder in Ayana Renewable Power. The NIIF set up Athaang Infrastructure, a wholly owned development company focused on the road sector, and acquired two operating toll projects – Essel Devanahalli Tollway and Essel Dichpally Tollway – through its Master Fund in 2020.
The NIIF forayed into the housing space by infusing Rs 6.6 billion ($90 million) in the second affordable housing fund of HDFC Capital Advisors Limited in October 2018. It joined ADIA as a limited partner in the HDFC Capital Affordable Real Estate – 2 Fund, which provides mezzanine finance to developers of mid-income and affordable urban housing projects. Buoyed by the opportunities in the healthcare sector in India, the NIIF announced an investment of Rs 21 billion in Manipal Hospitals in April 2021, marking the Strategic Opportunities Fund’s first investment in the healthcare space. This investment is one of the largest PE investments in the country by a domestic fund. The NIIF, through its Fund of Funds, has also invested in the Somerset Healthcare Fund, which is focused on providing growth capital to small and medium enterprises in the healthcare sector.
In sum
The NIIF aims to address concerns relating to the availability of equity and long-term debt funding to large-scale projects, thereby stimulating infrastructure development. Being long-tenor funds, these funds have the ability to invest at scale in important sectors and assets in the country, with the objective of generating attractive risk-adjusted returns for its investors. Alternative funding sources such as the NIIF have become necessary to meet the government’s ambitious investment requirements under the Rs 111 trillion National Infrastructure Pipeline. The NIIF is expected to play a key role in providing large-scale equity and debt financing to infrastructure projects.