NIIF gets aggressive

The youngest among financing institutions created by the government, the National Infrastructure and Investment Fund (NIIF), has adopted a different approach to go about its business. Operationalised through a private company of the same name in 2015, it is advancing more aggressively than many such institutions created earlier.

In contrast to financial institutions of the past, NIIF has been conceptualised to monetise infrastructure assets and channelise sovereign funds of other countries into India. The idea of monetisation in itself is new since traditionally promoters or operators are expected to remain invested in their projects. But just as promoters of start-ups look to rake in money through exits after creation of value out of their initial investment, the monetisation of assets creates value and frees up invested money, whether equity or debt, for investment elsewhere. At the same time, such an approach fills in for bank funding where sectoral limits have been reached.

The history of India’s industrialisation and infrastructure building has shown whenever there is need for investment and the private sector does not have the bandwidth, the government pitches in with its own institutions for manufacturing, building and even financing. The funding to spur industrial and infrastructure activity comes not just from the government’s capital spending but also from these institutions created by it outside its set-up. 

So, while a lot of public sector companies were set up to meet the demands of a growing economy, institutions like  IFCI created way back in 1948, IDFC in 1997 and even the currently troubled IL&FS set up in 1987 gave the required financial push. In the absence of a vibrant bond market, these institutions along with the Power Finance Corporation and Rural Electrification Corporation continued to pitch in with money for industrial as well as infrastructure project lending. Bank loans, however, continued to dominate the space even after the UPA government created the Infrastructure Finance Company Ltd in 2006 to provide long-term finance. 

The difference in NIIF’s approach not just comes from the newer concepts of monetisation and taping of sovereign funds, but also in the way it is investing in ports, renewable energy companies and airports. Since Abu Dhabi Investment Authority (ADIA) is a partner in NIIF, its first investment was in partnership with Dubai Ports in a $3-billion equity platform, Hindustan Infralog, focused on ports, terminals, transportation and logistics businesses in India. 

Similarly, NIIF’s Green Growth Equity Fund (GGEF), created in partnership with UK’s development finance institution CDC, bought stake in Ayana, a renewable energy platform promoted by CDC. 

Apart from instruments like HDFC’s Affordable Real Estate Fund and the acquisition of IDFC Infrastructure Finance that gave it a take-off point for debt funding in the infrastructure space, NIIF is also looking at the aviation sector. It made a failed attempt at acquiring the rights to develop and operate four Indian airports out of six, bidding for which closed last month. NIIF had reportedly tied up with Zurich Airport and is looking to invest in overseas airports. 

At the same time, there are reports of NIIF’s possible participation in the beleaguered Jet Airways. The fact that ADIA is a partner in NIIF is again crucial here since Etihad Airways, a UAE airline, is a 24 per cent equity partner in Jet. ADIA funding through NIIF could bring for Etihad the crucial say in the running of India’s second largest airline since, Etihad, a foreign entity, on its own cannot hold a majority stake in Jet. 

NIIF’s ambition for both the airports and an airline might be a case of thinking big but it is evident that UAE’s own interest is setting the course for the fund. Besides, it points towards digression from the initial purpose of bringing in fresh money and helping in the monetisation of assets. This is more so, if it invests in Jet Airways since going by the definition of infrastructure, services like airlines or telecom companies, do not constitute infrastructure. Airports and other such static public assets, like telecommunication towers, are part of infrastructure.

The confidence that ADIA and CDC bring to NIIF might give it an advantage over other domestic institutions. However, it must proceed with caution.