Abu Dhabi fund’s entry to spur investment in infrastructure asset monetisation

With A bu D ha bi Investment Authority (ADIA) becoming the first investor in the National Investment and Infrastructure Fund( NI IF ), mon et is at ion 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 NI IF and a wholly owned subsidiary of AD IA for $1 billion fund in fusion was signed on Monday. NIIF would eventually have a corpus of $6 billion (~40,000 cr ore) but the government share in it would be less than 50 percent, 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 NI IF. It has anchor commitments of £120 million each from the Union government( through NI IF) and the British government. Funds through it would be channel is ed for green energy projects.

NI IF is likely to get more equity participation from strategic partners, such as sovereign, quasi-sovereign, multilateral and bilateral investors. ADIA, forinstance, would bean investor in the Master Fund and a shareholder in N II F’ s investment management company. Beside, six domestic institutional investors— HDFCS tandard Life Insurance Company, HDFC Asset Management Company, Housing Development Finance Corporation, ICICI Bank, Kotak Mahindra Old Mutual Life Insurance and AxisBank— wouldbe joining the NIIF Master Fundalong with ADIA, apart from the government.

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

The A bu D ha bi 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 NI IF TL, trustee of the fund, and NIIFL, the investment management company, were incorporated in 2015, officials said the investors insisted on a 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 NI IF. In addition, the department of economic affairs has signed terms for cooperation on NI IF with the US and UK treasury.

The ministry of road transport had listed around 90 road projects for mon et is at ion under a transfer operatebasis. National Highways Authority of India( NH AI) has put nine of these operational projects on offer. NI IF 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 util is ed 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 mon et is at ion 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 NH AI.

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.