In ICRA’s view, NIIF has the potential to be a game-changer for the Indian infrastructure sector; however, the model will take some time to establish, and to begin with, investments are likely to be towards operational projects due to their lower risk profile. Nevertheless, this will help in releasing the capital of developers. As the model gains traction and investors’ confidence is built, under implementation projects can also be taken up.
According to Rohit Inamdar, Sr Vice President, Co-head Corporate Sector Ratings, ICRA, “The government’s investment through NIIF can have a multiplier effect on the sector with funds coming from anchor partners and leveraging in step-down funds. An investment of Rs 20,000 crore by the government can easily provide Rs 100,000 crore of funds to the infrastructure sector.”
NIIF can invest directly into infrastructure projects, sub-funds, or invest in the equity of infrastructure finance companies such as the Indian Rail Finance Corporation (IRFC), the National Housing Bank (NHB), etc. The fund, being a category-II AIF, will not be borrowing on its own; however, sub-funds in which NIIF will invest can leverage by borrowing funds and attract additional equity investments from other investors thereby increasing the total funds available.
As per the likely structure, various close-ended schemes will be formed based on sectors or investor preference, and either the Centre, along with the investors would be investing directly or through an umbrella NIIF in these schemes, says the ICRA report.
NIIF plans to build 49 per cent of its corpus funds from the Government of India while the remaining 51 per cent is expected to come from foreign and domestic strategic investors (anchor partners). The government’s minority ownership of NIIF will ensure that it is run independently as a private sector while having characteristics of sovereign fund.
NIIF is targeting to build a corpus of Rs 40,000 crore during the initial phase of operations of which, about Rs 19,600 crore (49 per cent) is to be brought by the government. However, in the Budget 2016-17, the government had made an allocation of Rs 4,000 crore towards NIIF and given the fiscal constraints, it may have to work within this for the time being. Nevertheless, if required, the government has shown interest of increasing the corpus. With respect to the anchor partners, NIIF has engaged into discussions with various Sovereign Wealth Funds and other potential investors. Further, NIIF has signed MoUs with Qatar Investment Authority (QIA), RUSNANO OJSC of Russia, and the Abu Dhabi Investment Authority (ADIA) from the UAE. Besides, domestic investors like LIC are also expected to be roped in once the corpus is built.