Infra pool to have separate funds for roads, clean energy

• The government has tweaked the structure of the National Infrastructure Investment Fund (NIIF), which will now have two dedicated funds — one for roads and another for clean energy — as it looks to get long-term funds into two crucial sectors of the economy.
• Originally, the government had planned to have NIIF as the mother fund which was to raise money from sovereign wealth funds (SWFs), pension funds and other long-term investors. But now finance ministry has changed the strategy.

About NIIF:

• National Investment and Infrastructure Fund (NIIF) is a fund created by the Government of India for enhancing infrastructure financing in the country.
• NIIF, proposed to be set up as a Trust, would raise debt to invest in the equity of infrastructure finance companies such as Indian Rail Finance Corporation (IRFC) and National Housing Bank (NHB). The idea is that these infrastructure finance companies can then leverage this extra equity, manifold. In that sense, NIIF is a banker of the banker of the banker.
• NIIF got registered with SEBI as Category II Alternative Investment Fund (AIF) on December 28, 2015. The Alternative Investment Funds (AIFs) have been categorised into three classes: Category I: These funds receive incentives from the government, SEBI or other regulating agencies. These include social venture funds, infrastructure funds, venture capital funds and SME funds; Category II: These funds are allowed to investment anywhere in any combination, but are not take debts, except for day-to-day operation purposes. These include private equity funds and debt funds; Category III: Funds that make short-term investments and then sell, like hedge funds, come under this.
• NIIF is envisaged as the parent of many funds, a structure that allows it to maximize the equity that the government is able to provide from its budgetary resources. At the top will be NIIF starting withRs 20,000 crore contribution from the government and slightly more from other investors, leaving the government with a stake of less than 50%. Therefore, to begin with the NIIF will be a Rs 40,000 crore fund. To further leverage these funds, instead of investing directly in infrastructure, NIIF will run a series of funds, providing them equity. These funds will in turn be able to leverage the equity to raise more equity, multiplying manifold the initial government contribution.

Analysis:

• The NIIF, which would function as as a sovereign wealth fund, would provide equity or quasi-equity support to NBFCs and financial institutions engaged in infrastructure financing. It would also invest in funds engaged in infrastructure sector, direct equity or debt support to commercially viable projects, both greenfield and brownfield, including stalled projects.
• The NIIF is expected to attract overseas sovereign, quasi-sovereign, multilateral and bilateral investors to co-invest in it as anchor investors. It would also leverage the corpus to raise funds from the market.
• Besides the government, cash-rich PSUs would also contribute to the NIIF, over and above the government’s 49% equity. Domestic pension funds and National Small Savings could also provide funds to NIIF.
• Contribution of the government to the NIIF would enable it to be viewed as a sovereign fund.

By: Vishal