National Investment and Infrastructure Fund (NIIF)
National Investment and Infrastructure Fund (NIIF)
The Government of India has initiated the National Investment and Infrastructure Fund (NIIF) which is a state-owned investment fund for enhancing investment in economic and social infrastructure financing in the country. NIIF is envisaged to be a fund of funds that generate risk-adjusted returns for its investors alongside promoting infrastructure development. NIIF was launched to catalyse funding into the country’s infrastructure sector by serving as the Sovereign Wealth Fund (SWF). Let us look in detail about the National Investment and Infrastructure Fund (NIIF) in this article.
Objectives of NIIF
The NIIF aims to maximize the economic impact mainly through infrastructure development in commercially viable projects such as greenfield and brownfield, including stalled projects. It would also consider other nationally important projects in manufacturing, if commercially viable. The fund intends to attract investment from both domestic and foreign investment sources. The investment fund objective is to generate attractive long-term risk-adjusted returns for investors on a sustainable basis.
NIIF manages various capital commitments across three funds with the distinctive investment strategy and also mandates to invest in infrastructure and related businesses that are likely to benefit from the long-term growth of the Indian economy. The fund coverage includes energy, transportation, housing, water, waste management and other infrastructure-related sectors in India.
- Master Fund: This fund primarily invests in operating assets in core infrastructure sectors, such as roads, ports, airports, energy etc. Target businesses are typically mature entities with a long-term track record, often operating in regulated environments or under concession/long-term agreements, and which can provide predictable inflation-hedged and stable cash flows.
- Fund of Funds: This fund invests in funds managed by fund managers in infrastructure and associated sectors. Sectors of focus include Green Infrastructure, Mid-Income & Affordable Housing, Infrastructure services and allied sectors.
- Strategic Investment Fund: This fund is aimed at growth and development-stage investments in large scale projects/companies in a broad range of sectors of economic and commercial importance, which are likely to benefit from India’s growth trajectory over the medium- to long-term.
Functions of NIIF
- Fundraising through suitable instruments including off-shore credit enhanced bonds and attracting anchor investors to participate as partners in NIIF.
- The NIIF Fund of funds that focuses mainly on core infrastructure and operating assets.
- It invests in funds managed by the third-party managers in the infrastructure and associated sectors which servicing of the investors of NIIF.
- It considers and approves the candidate companies/institutions/projects (including state entities) for investments and periodic monitoring of investments.
- The NIIF Strategic Fund is a diversified investment strategy, that includes the greenfield projects and debt platforms.
- Investing the NIIF Funds in the corpus created by the Asset Management Companies (AMCs) for investing in private equity.
- It prepares a shelf of infrastructure projects and providing advisory services.
- It provides the equity/quasi-equity support to those Non-Banking Financial Companies (NBFCs)/Financial Institutions (FIs) that are engaged mainly in infrastructure financing. These institutions would leverage this equity support and provide debt to the projects that are selected.
- It invests in funds that are engaged mainly in the manufacturing and infrastructure sectors managed by the AMCs for equity/listed quasi-equity funding/unlisted companies.
- NIIF would take key transportation projects initially for funding the Greenfield project and Brownfield project.
NIIF would also raise funds by issuing offshore credit enhanced bonds and also tap into anchor investors. The NIIF will be set as one or more Alternate Investment Funds (AIF) under the Securities and Exchange Board of India (SEBI) Regulations. In the case, it is set up as Category I and II AIFs, the NIIF will be eligible for a pass-through status beneath the Income Tax Act. The income generated by the fund will be taxed in the hands of the investor, and the fund itself will not have to pay tax on the same and it is called as a ‘pass-through’ status. If the category III AIF, where pass-through status is not available, then all income that is received by the NIIF will be taxable at its level and any allowance made to the unit holders (investors) would be tax-exempt.
The NIIF has full autonomy for the project selection. NIIF would formulate the guidelines and will follow the due processes for the selection criteria for AMCs and Non-Banking Financial Companies/Financial Institutions (FIs).
The Government’s contribution or share in the corpus would be up to the maximum of 49% in all entities set up as an Alternate Investment Fund (AIF) and would also be increased or maybe left to fall below, 49%. The whole of 49% will be contributed by the Government directly and the rest of the fund is open for the contribution from others. The contribution of the Government of India to the NIIF will enable it to be seen virtually as a social welfare fund and is expected to attract overseas sovereign/multilateral/bilateral investors/quasi-sovereign to co-invest in it. The Cash-rich Central Public Sector Enterprises (PSUs) would contribute to the Fund, that would be over and above the Government’s 49% contribution. Similarly, the domestic pension and provident funds and the National Small Savings Fund would also provide funds to the NIIF. The NIIF would utilize the proceeds of monetized land and other assets of the PSUs for infrastructure development. NIIF will apply these details in consultation with the Ministry of Finance, to meet different investors’ preferences.
- The NIIF will invest primarily as a financial investor and would have an option to seek control of the entities in its portfolio. It will have the flexibility to take strong positions with a long or short time horizon and invest, divest or remain liquid when it is commercially viable.
- NIIF will invest in the projects where the revenue streams are clearly identified in an agreement between the project plan entity and approved Government entity. It would be the endeavour of the NIIF to be treated on par with the contributor of its class.
- As a long term-term investor it will not be directed to market trends and have benefits of the long term investments. It will endeavour to manage the risks through portfolio diversification and exercise proper flexibility to actively seize investment opportunities as they materialize.
- The Investment Manager would have an Investment Committee that would comprise of experts from the industry and will have representatives of the contributors.
- The investments would be exited through privately negotiated enterprise-level divestments, asset sales, re-capitalizations or through the public market, redemptions from the cash flows of underlying investments, disposition of underlying investments/assets and any other mechanism as would be available.