NIIF the stealth hero of infrastructure investment

The National Infrastructure and Investment Fund (NIIF) was established in 2015 as a trust, registering as a category-II alternative investment fund (AIF) under regulation 2(b) of the SEBI (AIF) Regulations, 2012. Consisting of four funds, the NIIF has a funding target of USD6 billion, of which USD4.9 billion has been raised as of October 2023. Its purpose is to drive the growth of infrastructure development by investing in commercially viable infrastructure assets of national interest.

The NIIF is mandated to encourage equity participation in its constituent funds by strategic partners, such as overseas sovereign, quasi-sovereign, multilateral and bilateral investors. The government contributes 49%, with 51% per cent coming from other investors.

Through each of its four funds, the NIIF targets specific areas. For core infrastructure sectors such as transport and energy, the USD2.34 billion Master Fund is used. The USD2.1 billion PE Strategic Operations Fund invests in scalable greenfield assets of strategically important sectors such as financial services, social infrastructure and manufacturing. Through the USD1 billion Fund of Funds, the NIIF invests in other funds of infrastructure and associated industries, including green infrastructure, mid-income and affordable housing and infrastructure services. The USD600 million India Japan Fund focuses on channelling investments from that country to India.

To achieve its objectives, the NIIF creates specialised vehicles and forges strategic partnerships with other institutional investors. This anchors investments in specialised infrastructure development sectors and ensures long-term and sustained flows of capital.

It has collaborated with the UK Department for International Development to establish the Green Growth Equity Fund that invests in climate-related, scalable green and sustainable businesses. That fund, in turn, has invested in Ayana Infrastructure, the dedicated NIIF platform that operates, maintains and develops over five GW of renewable energy. The NIIF’s partnership with Dubai-based DP World led to the setting up in 2018 of the USD3 billion platform, Hindustan Infralog, which invests in ports, terminals and logistics assets.

The NIIF has set up a pan-India hyperscale data centre platform, in collaboration with Digital Edge and AGP, to invest in public cloud infrastructure in India. In the infrastructure debt financing business, the NIIF has set up sister companies Aseem Infrastructure Finance and the NIIF-IFL.

The NIIF is involved in asset building and uses its platforms and partnerships to invest in various infrastructure sub-sectors. These investments are particularly significant because of the government’s USD270 billion National Infrastructure Pipeline that benefits from liberalised foreign direct investment regulations.

The NIIF has built up a 230-kilometre road portfolio, generating revenues of USD170 million a year. It includes five assets comprising highways and tollways, which the NIIF proposes to sell on an enterprise value basis for USD1.2 billion.

In aviation, the NIIF has invested in international airports at Goa and Vishakhapatnam operated by the GMR group on a 40-year design-build-finance-operate-transfer basis. Significant investments have also been made in healthcare, affordable housing and the speciality manufacturing sector.

The NIIF has countered the failure of traditional sources of investments to provide long-term stable capital for infrastructure. While the NIIF has been an attractive channel for foreign and institutional domestic investors in combining their investments, it has yet to achieve its targeted size. However, the NIIF has quietly made great progress in raising funds and driving investment in infrastructure. As a PE and VC vehicle, the NIIF has provided an opportunity for institutional investors to diversify their investments. This has overcome their reluctance to invest in infrastructure assets that could become stressed or non-performing, unsurprising given the instability in the sector.

The NIIF has become one of the most viable sources of infrastructure financing. As it makes further investments and its projects come onstream, the NIIF will play a key role in helping the Indian economy achieve its USD10 trillion economic growth target by 2030.

Rohit Jain is managing partner and Nitish Mawkin is a principal associate at Singhania & Co.