Abu Dhabi fund's entry to spur investment in infra asset monetisation

The first investment agreement between NIIF and wholly-owned subsidiary of ADIA was for $1 bn

With Abu Dhabi Investment Authority (ADIA) becoming the first investor in the National Investment and Infrastructure Fund (NIIF), monetisation of infrastructure projects, especially in the highway sector, is likely to gain pace. 

The fund would also be playing an incubation role for companies that could take up projects under the central government’s smart city, green energy and cleanliness programmes.

The first investment agreement between NIIF and a wholly owned subsidiary of ADIA for $1 billion fund infusion was signed on Monday. NIIF would eventually have a corpus of $6 bn (Rs 40,000 crore) but the government share in it would be less than 50 per cent, to keep the ownership non-state.

An India-UK Green Growth Equity Fund (GGEF) would also be set up under one of the verticals of NIIF. It has anchor commitments of £120 million each from the Union government (through NIIF) and the British government. Funds through it would be channelised for green energy projects.

NIIF is likely to get more equity participation from strategic partners, such as sovereign, quasi-sovereign, multilateral and bilateral investors. ADIA, for instance, would be an investor in the Master Fund and a shareholder in NIIF’s investment management company. Beside, six domestic institutional investors--HDFC Standard Life Insurance Company, HDFC Asset Management Company, Housing Development Finance Corporation, ICICI Bank, Kotak Mahindra Old Mutual Life Insurance and Axis Bank -- would be joining the NIIF Master Fund along with ADIA, apart from the government.

An initial budgetary allocation of Rs 4,000 crore was made by the Centre for 2016-17 in NIIF but it remained unutilised. On February 1, the finance minister revised the allocation downward to Rs 1,000 crore. A similar allocation has been made for 2017-18. 

The Abu Dhabi investment comes a little over two years since the Union Cabinet (in July 2015) decided to set up one or more alternative investment funds (AIFs) under the Securities and Exchange Board of India regulations. While two companies NIIFTL, trustee of the fund, and NIIFL, the investment management company, were incorporated in 2015, officials said the investors insisted on a non-governmental nature for the organisation, which delayed final investment. NIIF, however, would work under the government, with a governing council under Finance Minister Arun Jaitley playing an advisory role. 

According to an official statement, the government of UAE, RUSNANO, QIA, RDIF and Japan Overseas Infrastructure Investment Corporation for Transport & Urban Development  have signed agreements with NIIF. In addition, the derpatment of economic affairs has signed terms for cooperation on NIIF with the US and UK treasury. 

The ministry of road transport had listed around 90 road projects for monetisation under a transfer-operate-transfer (TOT) basis. National Highways Authority of India (NHAI) has put nine of these operational projects on offer. NIIF is likely to back entities which would bid for operation and maintenance (O&M) of these projects. 

The funds raised by leasing these highway projects would be utilised for financing other projects to be built under government funded and hybrid annuity modes.

In August 2016, the Cabinet Committee on Economic Affairs had approved monetisation of highway projects that are operational and generating revenue for at least two years. This would be on the strength of future toll receivables. After monetisation, O&M would require reduced involvement of NHAI. 

The government expects this would create business opportunities for a new segment, of developers specialising in O&M, for institutional investors (including pension and insurance funds and sovereign funds) which are otherwise averse to taking construction risk but are adequately equipped for making long-term investments in road infrastructure.

Mega Infra Investment

• The first investment agreement between NIIF and wholly-owned subsidiary of ADIA was for $1 billion
• NIIF would eventually have a corpus of $6 billion
• The government share in NIIF would be less than 50%
• An India-UK Green Growth Equity Fund  would also be set up under one of the verticals of NIIF
• It has anchor commitments of £120 million each from the Union government (through NIIF) and the British government