NIP targets to invest Rs.111 lakh crore over 5 years
The Union Cabinet has approved the proposal for equity infusion by the Government of Rs.6,000 crores in NIIF Debt Platform sponsored by National Investment and Infrastructure Fund (NIIF), comprising of Aseem Infrastructure Finance Limited (AIFL) and NIIF Infrastructure Finance Limited (NIIF-IFL), subject to the following conditions:
That only Rs.2,000 crore would be allocated during the current year 2020-21. However, in view of the unprecedented financial situation and availability of limited fiscal space due to the prevailing COVID-19, the proposed amount may be disbursed only if there is readiness and demand for debt raising.
NIIF will take all necessary steps to use the equity investments from Domestic and Global pension funds and sovereign wealth funds expeditiously.
This was one of the 12 key measures made by Finance & Corporate Affairs Minister Nirmala Sitharaman, as part of the Government’s stimulus to the economy, under AatmaNirbhar Bharat 3.0 on 12 November 2020.
The NIIF Strategic Opportunities Fund has set up a Debt Platform comprising an NBFC Infra Debt Fund and an NBFC Infra Finance Company.
NIIF through its Strategic Opportunities Fund (NIIF SOF) owns a majority position in both the companies and has already invested ~ Rs.1,899 crore across the Platform.
The Strategic Opportunities Fund (SOF fund) through which the NIIF investment has been made will continue to support the two companies apart from investing in other suitable investment opportunities.
The current proposal seeks Government’s investment directly to further scale the potential and impact of the two entities in the infrastructure debt financing space. This will also support the efforts of the platform to raise international equity.
With the fresh infusion of equity by the government, besides the equity already infused by NIIF SOF and potential equity participation from the private sector, the debt platform is expected to raise enough resources to extend debt support of Rs.110,000 crore to projects by 2025, said the Cabinet on 25 Nov 2020.
The strategy is AIFL will predominantly focus on under construction, greenfield and brownfield assets with less than one year of operations.
NIIF Infrastructure Debt Financing Platform will have its own in-house appraisal system, which will enable faster deployment of funds.
NIIF IFL (NBFC-IDF) will operate as a take-out vehicle for mature operating assets.
It will help infrastructure investors in replacing high-cost bank finance with cheaper IDF finance post-commissioning.
Over the next 5 years (NIP Plan Period), the NIIF Infrastructure Debt Financing Platform can potentially support the construction of infrastructure projects worth ~ Rs.100,000 crore.
The Platform will also need to raise external long-term equity capital as well as debt from both domestic and international markets over the next few years which could result in a multiplier of 14-18 times of the proposed capital infusion of up to Rs.6,000 crore from the Government.
NIIF will make strong efforts to use the equity investments by Government to catalyse equity investments by Domestic and Global Pension, Insurance and Sovereign Wealth Funds in the NIIF Infrastructure Debt Financing Platform.
The expenditure involved: Rs.6,000 crores will be invested as equity in the NIIF Debt Platform over two financial years, i.e., 2020-21 and 2021-22.
NIIF Infrastructure Debt Financing Platform is expected to contribute nearly Rs.1 lakh crores in debt to the infrastructure sector over the next 5 years. This will act as a catalyst in attracting more investments into the infrastructure sector as envisaged in the National Infrastructure Pipeline.
This process will also help relieve the exposure of banks to infrastructure projects and free up space for new green-field projects. Strengthening the IDF and take-out financing space in the infrastructure sector will support enhance the liquidity of infrastructure assets and lower the risks.
In India, infrastructure projects are executed through SPVs. Typically, the SPVs on a standalone basis would find it challenging to get an investment-grade rating, even after the completion of construction.
It is also expected that the Debt platform will raise debt from the Bond market and serve as a trusted intermediary. AIFL is rated AA by Care ratings and NIF-IFL is rated AAA by Care Ratings and ICRA.
Bond investors seek lowers margins than banks, but prefer to invest in the debt of AAA and AA rated entities, to meet their own risk management guidelines. Long term bond investors including Pension and Insurance Funds typically invest in bonds rated AAA.
It is expected that a well-capitalized, well-funded and well-governed NIIF debt Platform can play a major role in infrastructure financing and development of the Bond Market in India by acting as a AAA and AA-rated intermediary between the bond markets and infrastructure projects and companies.
As per the National Infrastructure Platform (NIP), investment in the infrastructure sector is targeted at Rs.111 lakh crore over the next 5 years across various sub-sectors, creating a substantial need for debt financing.
This would require at least Rs.60 to Rs.70 lakh crores in debt financing.
This current environment requires well-capitalized specialized infrastructure-focused financial institutions, such as the ones being developed by National Investment and Infrastructure Fund (NIIF), which can focus on lending across the project life cycle with a strong capital base and expertise-driven approach, said the Cabinet. #banking #investment #fund #infrastructure #economy /fiinews.com
