The infrastructure financing landscape in India has evolved significantly, driven by the participation of domestic and global financiers. A supportive policy and regulatory environment has further enhanced its appeal. At a recent India Infrastructure conference, industry experts shared their investment experience, lending plans, the potential for financing infrastructure projects and key focus areas for the future. Excerpts…
Evolving regulatory landscape for financing infrastructure projects
Sudip Mahapatra
Regulatory stability for infrastructure development is a must as long-term investors make their decisions based on specific structural assumptions. Sudden regulatory changes can significantly disrupt the investment theses. For example, the SEBI’s mandate that privately unlisted infrastructure investment trusts (InvITs) should transition to public listing. This regulatory change altered the shareholding patterns, disclosure requirements, and transformed the investment landscape for sovereign wealth and pension funds.
A few challenges continue to plague infrastructure financing. These include dispute resolution mechanisms and land acquisition processes. In terms of FDI, dispute resolution remains a critical concern. The National Company Law Tribunals, which handle shareholder litigation, suffer from systemic limitations including insufficient judicial capacity and a lack of specialised commercial dispute expertise. The judicial system requires significant capacity building. Specialised infrastructure courts and robust dispute resolution mechanisms are the need of the hour.
While improvements have been observed since the mid-2000s, the system has not yet reached the efficiency of advanced jurisdictions like those in Singapore. The dispute resolution process at international arbitration centres such as the Singapore International Arbitration Centre (SIAC) highlights the need for more active participation by the Indian government.
Government and regulatory bodies are showing modest improvements in consultation mechanisms. Certain platforms like Invest India have emerged as effective forums for gathering and implementing feedback, particularly from foreign investors.
Zia Nariman
Regulatory certainty is important. The establishment of entities like the SECI has played a pivotal role in sector development, particularly in renewable energy. The potential replication of such central bodies in emerging sectors like biogas presents a promising approach. Centralised offtake, strong regulatory counterparties and consistent regulation are fundamental elements necessary for sector growth.
Arun Sarathy
Multilateral development banks have demonstrated remarkable effectiveness in development across sectors. The Rewa Ultra Mega Solar Limited scheme for renewable energy projects illustrates how carefully structured frameworks can transform sector economics. By developing comprehensive agreements with state undertakings, these institutions can create robust investment environments.
Similar successful interventions are evident in other sectors, such as KSHIP by the PWD of the Government of Karnataka, where the Asian Development Bank introduced innovative financing grants. These approaches can significantly enhance sector bankability and attract broader participation.
Financing outlook and opportunities
Sudip Mahapatra
Globally, India is garnering significant attention. Hence, the infrastructure sector is well positioned for further investments and is showing a promising growth trajectory.
Zia Nariman
This is indeed an exciting time, as India has emerged as one of the top two investment destinations globally. With ample capital availability, the priority now lies in developing well-structured, bankable projects. Therefore, de-risking of projects must become a key focus area to maximise the investment potential.
Arun Sarathy
The outlook for infrastructure financing in India remains highly optimistic, driven by robust lender confidence and significant government support. With commercial banks, non-banking financial companies (NBFCs) and foreign banks showing increasing willingness to fund infrastructure projects, the sector is poised for transformative growth.
Focus areas and future plans
Sudip Mahapatra
S&R Associates, a full-service law firm, advises clients on matters relating to a wide-range of infrastructure assets, including energy (conventional and renewable), ports, roads, airports, railways, warehousing, data centres, e-mobility, and waste and water management.
Additionally, the firm has been proactive in advising clients in the infrastructure sector on mergers and acquisitions, private equity investments and InvIT transactions. The firm also advises on bidding for infrastructure assets, concession agreements, engineering, procurement and construction (EPC) contracts, operations and maintenance contracts, power purchase agreements and offtake agreements. Furthermore, S&R Associates represents clients in various disputes related to infrastructure projects.
Zia Nariman
The International Finance Corporation (IFC), a member of the World Bank, embraces a triple bottom line approach, targeting commercial returns while achieving developmental impact and crowding in private capital. As IFC’s biggest client country, India represents over 11 per cent of its global portfolio, with an exposure of $8.9 billion as of June 30, 2024, highlighting India’s strategic importance.
In the past five years, IFC has mobilised $4.1 billion and invested $7.1 billion of its own capital in India. 40-50 per cent of IFC’s portfolio is dedicated to power, exclusively renewable energy. The transport and logistics sector, including airports, ports, cold chains and warehouses, accounts for the second largest share. In addition to these, IFC has participated in sectors such as water and waste management. The remainder of its portfolio is spread across sectors like telecom, media and technology. Moreover, IFC has extended its support to Indigrid through multiple bond issuances.
IFC’s investment strategy has evolved from preferring smaller check sizes to accommodating larger ticket sizes. A notable example is the $100 million investment in the Cube Highways road platform, established in collaboration with I-Squared Capital. This investment addressed a critical market need by creating a platform capable of acquiring and completing unfinished road projects from EPC contractors facing liquidity constraints. This approach also established a replicable model for other infrastructure projects.
Future investment focus areas include electric vehicles, battery storage, transmission and decarbonisation.
Arun Sarathy
Aseem Infrastructure Finance Limited (AIFL), established in 2019, has emerged as a leader in the infrastructure financing space. Incubated by the Strategic Opportunities Fund of the National Infrastructure Investment Fund (NIIF), a Government of India initiative, the AIFL is backed by key stakeholders, including NIIF (59 per cent), the Government of India (31 per cent) and Sumitomo Mitsui Banking Corporation (10 per cent). This unique ownership structure equips AIFL with a robust capital base, with equity infusions exceeding $310 million, and access to a wealth of strategic expertise and resources.
In just over four years, AIFL has demonstrated growth with its asset under management soaring to over $1.75 billion (~Rs 145 billion) as of March 2024. AIFL has distinguished itself through its innovative and inclusive approach to infrastructure financing, with a diversified portfolio spanning renewable energy, roads, telecom, power transmission, urban utilities and data centres. With renewable energy (52 per cent) and roads (29 per cent) forming the core of its portfolio, AIFL has financed over 5.3 GW of renewable energy projects, contributed to the construction of 6,500 km of highways, and enabled the development of 936 ckt. km of transmission infrastructure till date.
Key future plans include enhancing its portfolio by investing in sunrise sectors such as green hydrogen, e-mobility, energy storage systems and digital infrastructure. The company aims to align its initiatives with India’ decarbonisation goals and urbanisation needs while continuing to expand its renewable energy financing footprint.
