The Union Cabinet, chaired by Prime Minister Narendra Modi, has given approval to the proposal for equity infusion by the government of Rs 6,000 crore in NIIF Debt Platform sponsored by the National Investment and Infrastructure Fund (NIIF), comprising Aseem Infrastructure Finance (AIFL) and NIIF Infrastructure Finance (NIIF-IFL), subject to conditions.
The conditions include that only Rs 2,000 crore will be allocated during FY21. 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.
Also, NIIF will take all necessary steps to use equity investments from domestic and global pension funds and sovereign wealth funds expeditiously.
This was one of the 12 key measures made by Union Minister for Finance & Corporate Affairs Nirmala Sitharaman, as part of the government of India’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 around Rs 1,899 crore across the platform. The 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 the Centre’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 1,10,000 crore to projects by 2025.
The strategy is AIFL will predominantly focus on under-construction/ greenfield/ 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.
The 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 five years i.e. NIP Plan Period, NIIF Infrastructure Debt Financing Platform can potentially support construction of infrastructure projects worth around Rs 1,00,000 crore.
The platform will also need to raise external long-term equity capital and 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 Centre.
NIIF will make efforts to use the equity investments to catalyse equity investments by domestic and global pension, insurance and sovereign wealth funds in the NIIF Infrastructure Debt Financing Platform. The amount of Rs 6,000 crore will be invested as equity in the NIIF Debt Platform over FY21 and FY22.
The NIIF Infrastructure Debt Financing Platform is expected to contribute nearly Rs one lakh crore in debt to the infrastructure sector over the next five years. This will act as a catalyst in attracting more investments into the infrastructure sector as envisaged in National Infrastructure Pipeline (NIP).
This process will also help relieve exposure of banks to infrastructure projects and free up space for new greenfield projects. Strengthening the IDF/take-out financing space in the infrastructure sector will support enhance liquidity of infrastructure assets and lower the risks.