Augmenting Capital: Expanding role of NIIF in infrastructure financing

Expanding role of NIIF in infrastructure financing

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.