The government will infuse Rs 2,000 crore as equity in a debt platform of the National Investment and Infrastructure Fund (NIIF) in the current financial year. This is part of the Rs 6,000 crore announced by Finance Minister Nirmala Sitharaman under a stimulus package earlier this month.
However, given a resource crunch facing the government, the amount approved by the Union Cabinet on Wednesday – which is a third of the total funds committed – could be infused this year only if there is an absorptive capacity to utilise that. The remaining funds will be released in 2021-22.
The total equity infusion of Rs 6,000 crore, along with other funds, will help the platform raise Rs 6-7 million of debt by 2025 to fund infra projects to the tune of Rs 1.1 trillion so that costlier bank finances could be replaced. This would also help the platform raise equity to the tune of Rs 7,000 crore from domestic and global pension, insurance and sovereign wealth funds.
Information and Broadcasting Minister Prakash Javdekar on Wednesday said NIIF would take all necessary steps to use the equity investment funds expeditiously.
The NIIF Strategic Opportunities Fund (NIIF SOF) has set up a debt platform comprising an NBFC Infra Debt Fund (IDF) and an NBFC Infra Finance Company. NIIF, through the NIIF SOF, owns a majority position in both companies and has already invested Rs 1,899 crore across the platform.
The SOF fund, through which the NIIF investment had been made, would continue to support the two companies apart from investing in other suitable investment opportunities, Javdekar said.
Aseem Infrastructure Finance Limited (AIFL), one of the companies of NIIF, will predominantly focus on under-construction greenfield assets, besides brownfield assets with less than a year of operations. The debt financing platform will have its own in-house appraisal system, which will enable faster deployment of funds.
NIIF Infrastructure Finance Limited (NIIF-IFL), the other company of NIIF, will operate as a take-out vehicle for mature operating assets. It will help infrastructure investors replace high-cost bank finance with cheaper IDF finance post-commissioning.
Over the next five years of the national infrastructure pipeline, the debt financing platform can potentially support the construction of infrastructure projects worth Rs 1 trillion. This will act as a catalyst in attracting more investments into the infrastructure sector.
In India, infrastructure projects are executed through special purpose vehicles. Typically, the SPVs, on a standalone basis, would find it challenging to get investment-grade rating, even after the completion of construction. It is also expected that the debt platform will raise debt from the bond market and serve as a trusted intermediary.
AIFL is rated AA by Care Ratings and NIF-IFL is rated AAA by Care Ratings and ICRA. Bond investors seek lower margins than banks, but prefer to invest in debt of AAA-/AA-rated entities to meet their own risk management guidelines. Long-term bond investors, including pension and insurance funds, typically invest in bonds rated AAA.
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