After a slow start, fund-raising by the National Investment and Infrastructure Fund (NIIF) has gained some momentum of late. However, close to five years after its inception, the quasi-sovereign wealth fund is yet to develop into a large enough financing vehicle to be able to meaningfully anchor the government’s ambitious investment plans under the Rs 111-lakh-crore National Infrastructure Pipeline (NIP).
A spokesperson with NIIF told FE it manages assets of $4.3 billion across its three funds. Much of NIIF’s fund-raising and investments have materialised only after 2018. Its Master Fund has now drawn investment commitments of $2.1 billion from investors. The Master Fund focuses mainly on core infrastructure and operating assets, The Fund of Funds, which focuses on sectors such as green energy, affordable and mid-income housing, social infrastructure, manufacturing and logistics, has received $700 million in commitments — $500 million from the government and $100 million each from the Asian Infrastructure Investment Bank and Asian Development Bank. It’s $300 million short of its $1-billion target.
The Strategic Opportunities Fund — which has a more diversified investment strategy, including green-field projects and debt platforms — has a funding commitment of $1 billion from the government. A matching amount has to be raised from global and domestic financial institutions.
In the Budget for FY21,the government had set aside Rs 22,000 crore for infusion into IIFCL and NIIF (the latter’s share is expected to be about Rs 6,000-7,000 crore). “They would leverage it, as permissible, to create financing pipeline of more than Rs 1,00,000 crore. This would create a major source of long-term debt for infrastructure projects…,” finance minister Nirmala Sitharaman had said in her Budget speech, reiterating the government’s NIP commitments.
Of course, NIIF is just one of the several windows that have to be tapped to meet the huge investment requirement under the NIP. But given its mixed track record in raising or investing funds quickly and the current external headwind, creating a financing pipeline of over Rs 1lakh crore with IIFCL would be a herculean task for NIIF.
Already, a task force under former economic affairs secretary Atanu Chakraborty has estimated that as much as 31% or more of the envisaged investments of Rs 111 lakh crore under the NIP over six years through FY25 would have to be raised through debt from the bond market, banks and shadow lenders. Fair amount of money will also have to raised through establishing new domestic financial institutions and using asset monetisation at both central and state levels, it has said.
Given that most public-sector banks are struggling to cope with toxic assets, their ability to fund large infrastructure projects is very limited. So funds for infrastructure from other sources, including NIIF, assume importance. The government had committed Rs 20,000 crore for its planned 49% stake in all NIIF funds, the rest was to be raised by the NIIF from international and domestic institutional investors over time. The NIIF Master Fund has raised funds from a clutch of investors, including Abu Dhabi Investment Authority (ADIA), Temasek of Singapore, Canada Pension Plan Investment Board (CPPIB), AustralianSuper, ICICI Bank, HDFC Group, Kotak Mahindra Life Insurance and Axis bank. ADIA alone has committed $1 billion, CPPIB $600 million and Temasek $400 million.
NIIF has invested in a slew of assets as well. Its Master Fund and Dubai-based ports operator DP World have acquired 90% of Continental Warehousing through a jointly created a platform company, Hindustan Infralog (HIL). It had announced that its venture with DP World would create a fund to invest up to $3 billion in equity in transport and logistics. The Master Fund has also invested in Ayana Renewable Power, which has 1.1 GW solar plants under development, among others.
NIIF Fund of Funds has invested Rs 660 crore in healthcare management firm H-Care2. NIIF has also invested £ 20 million pounds (around Rs 1,130 crore) in the Green Growth Equity Fund, with focus on the climate space.
The NIIF Strategic Opportunities Fund has acquired a controlling stake in IDFC-IFL, an infrastructure debt fund, and re-christened it as NIIF Infrastructure Finance. Similarly, it has set up a second NBFC, Aseem Infrastructure Finance, which aims to invest in projects across the infrastructure spectrum, including greenfield projects, according to the reply by NIIF.
To be sure, part of the delay in raising or investing desired amount of funds by NIIF, especially in the initial phase, can be attributed to the usual time-consuming process of building a new institution. An official source had earlier said NIIF is an independent body (the government is just an investor), which makes its own decisions. So prospects of returns on investments take precedence over swiftness in expanding investment portfolio.
The NIIF was set up in December 2015 as a Category-II Alternate Investment Fund. NIIF chief executive Sujoy Bose, however, was appointed in only June 2016 and the senior management of the fund was also put in place by early 2017.
FE had earlier reported that following the drop in oil prices in recent years, sovereign wealth funds from Western Asia and even Russia, the potential candidates for investing in NIIF, had turned more cautious. This had delayed the entire process of investments by NIIF as well.