The National Infrastructure and Investment Fund (NIIF) is an entity registered as a Category II Alternative Investment Fund (AIF) under the Securities and Exchange Board of India (SEBI). It was established by the Government of India in the financial year 2015-16 under the former Minister of Finance, Arun Jaitley, with a planned corpus of Rs. 40,000 crore to invest in commercially-viable long-term greenfield, brownfield and stalled projects in the infrastructure sector collaboratively and sustainably. Its headquarters are in Mumbai, Maharashtra, with Mr. Sujoy Bose as its Chief Executive Officer.
It is cited as India’s first sovereign wealth fund (SWF), but a more precise nomenclature would be a ‘quasi-sovereign wealth fund’ since the GoI has a 49% stake with the rest held by foreign and domestic investors. A sovereign wealth fund is a State-owned fund used to invest in capital assets, alternative funds like private equity and hedge funds, etc. mostly from the country’s reserves to maximize economic impact.
At the time of its establishment, India was facing a bad loan problem and many infrastructural projects had been stalled due to lack of capital to be invested, causing great losses, creating a need for immediate financing and revival of these projects. Thus, the NIIF was established to boost investment in the infrastructure sector through increased public-private partnerships, foreign investment inflow and to remove the burden of financing these projects from the banks which were already heavily constrained to provide long-term loans. This in turn would further boost the economy and create jobs.
The governing structure of the NIIF consists of the Governing Council, the Board of Directors, and the Investment Committee. While the Government is a major stakeholder, it provides strategic guidance as a sponsor through the Governing Council, which is chaired by the Finance Minister of India and comprises important members from business, investment and policy sectors. The Board consists of shareholder representatives/nominees and independent Directors who meet quarterly to review NIIF’s overall strategy. The actual decision-making and implementation of operations, strategy, and investment are done by the Investment Committee which comprises senior management of NIIF including its Managing Director and CEO, who make decisions through a three-step review process based solely on commerciality.
According to the latest data, it manages over USD 4.3 billion of equity capital commitments across its three types of funds – Master Fund, Fund of Funds, and Strategic Opportunities Fund.
The Master Fund is India’s largest core infrastructure fund with investments in scalable projects in sectors such as transportation and energy. The Master Fund invests in mature businesses with a long-term track record, often operating in regulated environments or under concession or long-term agreements since they are expected to provide predictable inflation-hedged and stable cash flows. It follows the strategy of establishing sector-specific companies in association with prominent companies to build a diversified portfolio. The current projects under this fund include Ayana, the Renewable Energy Platform, to invest in solar and wind power plants; a ports and logistics platform, Hindustan Infralog Private Limited (HIPL), in partnership with DP World; and a smart meters platform called IntelliSmart Infrastructure Private Limited, which is a joint venture created by NIIF and Energy Efficiency Services Limited (EESL) to implement, finance and operate the smart meter roll-out program of power distribution companies.
The Fund of Funds focuses on investing in credible third-party India-focused equity fund managers across sectors like climate infrastructure, middle-income & affordable housing, digital consumer platforms, and other allied sectors. It seeks to anchor and back these fund managers to accumulate more funds from further institutional investors. The fund managers are chosen by evaluating their track record, investment strategies, and risk management. Projects invested in by this fund include the Green Growth Equity Fund (GGEF) established in collaboration with the UK Government, each committing GBP 120 million, with EverSource Capital as the third party fund manager; the HDFC Capital Affordable Real Estate Fund 2 (H-CARE 2), an investment platform managed by HDFC Capital Advisors, where NIIF has invested INR 6.60 billion with other investors including the Abu Dhabi Investment Authority (ADIA) and HDFC Ltd to provide structured debt solutions to developers of mid-income and affordable urban housing projects; the Multiples Private Equity Fund III, a Category II AIF Mid-Market Growth Equity Fund managed by Multiples Alternate Asset Management Pvt. Limited where NIIF has committed INR 8,780 million and participation from various multilateral development banks and pension funds to catalyze the capital-starved mid-market segment; and the Somerset Indus Healthcare India Fund (“Fund II”), managed by Somerset Healthcare Investment Advisors Private Limited where NIIF has committed INR 1,250 million, partnering with global and domestic investors, to enable the provision of equity capital into small to medium-sized companies run by capable local entrepreneurs.
The Strategic Operations Fund is a private equity fund that seeks to invest in opportunity long but capital short sectors strategic to India’s developmental goals, like education, financial services, food, and agriculture, etc., through an incubation or acquisition strategy. Ongoing investments under this fund include the NIIF Infrastructure Finance Limited (NIIF IFL), a Non-Banking Financing Company registered with the RBI as an Infrastructure Debt Fund (NBFC-IDF), to help operating infrastructure assets with satisfactory commercial operations for more than one year by refinancing loans originally taken for project development; and Aseem Infrastructure Finance Limited (AIFL), an NBFC registered with the RBI as an Infrastructure Finance Company (NBFC-IFC), to lend across infrastructure assets in different phases of implementation. The NIIF IFL and the AIFL together form the NIIF Infrastructure Debt Financing Platform.
The NIIF has been in the news recently as part of PM Modi’s speech on 6th November 2020 at the Virtual Global Investor Roundtable where he pitched India as a desirable destination for foreign direct investment and the resilience of Atma Nirbhar Bharat as the Government’s strategy towards economic recovery. The GoI has an ambitious plan to invest USD 1.5 trillion under the National Infrastructure Pipeline (NIP). However, there are doubts that the NIIF hasn’t picked up enough momentum as a financing vehicle to fulfill this ambition, having been slow on meeting its targets for investments. The Finance Minister, Nirmala Sitharaman, also recently announced the government’s capital infusion of Rs 6,000 crore in the NIIF over two years, provided the demand for debt raising, with an allocation of Rs. 2,000 crores for the current fiscal to the Strategic Operations Fund (SOF) of the NIIF.
However, some major challenges have been identified with the NIIF. While it was established to help revive stalled projects, it shouldn’t be used to bail out companies stuck in a rut. It is also important to make sure that the NIIF while reviving stalled projects, separates unviable projects from viable ones. Another problem with reviving stalled projects is understanding why many infrastructure projects end up like this is because they displace and damage the indigenous people, flora and fauna, and the environment. Also, while the NIIF claims to be independent of the government’s influence while taking decisions and choosing projects for investment, there is a clear lack of transparency and accountability owing to the dearth of any project plans or annual reports made public. These issues require immediate rectification.
By Aditi Singh, Research Associate, Policy, LQF