Equipped with an enviable war chest of funds, NIIF must seek out investment opportunities on a war footing.
Registered in December 2015, the National Investment and Infrastructure Fund (NIIF) has been structured as a fund manager with three Alternative Investment Funds (AIFs)—namely a Master Fund, a Fund of Funds (FoF) and a Strategic Investment Fund—under it. Unable to garner any funding commitments from foreign sovereign wealth funds or investors till Q1FY18, the recent spate in its activities might as well be a signal that it has finally come out of its Odin’s nap.
The swift mobilisation of NIIF in the last year is owed to an uptick in both its funding and investing activities. On the funding front, it secured the second closure of its Master Fund in September, with a commitment of $400 million from Temasek. With this, the Singaporean global investment company joined the Abu Dhabi Investment Authority and six other domestic investors as the shareholder of the National Investment and Infrastructure Ltd, NIIF’s investment management company.
With regards to its investments, NIIF’s first investment and a joint venture with DP World, Hindustan Infralog Pvt Ltd (HIPL), has started carrying out its mandate of investing in ports and freight corridors, among others. In March, HIPL acquired 90% stake in Continental Warehousing Corporation (Nhava Seva) Ltd, and according to reports has also subsequently bid for and is slated to lease 44 acres of JNPT SEZ for Rs 563.2 crore. Additionally, NIIF’s FoF has undertaken its first investment by setting up the Green Growth Equity Fund, with a commitment of 120 million pounds each from NIIF and the UK government.
Now, even though NIIF has secured two closures for its Master Fund, and has commitments from the Indian government, its website lists only the two aforementioned investments (one via the Master Fund and the other through FoF) as being undertaken by it. Evidently, its functioning till date leaves much to be desired since with a commitment of over $3 billion, it has little to show for in terms of investments made. Hence, envisaged as a means to bridge the infrastructure funding gap (estimated by Economic Survey 2018 to be $526 billion by 2040), NIIF, as of now, has fallen way short of its mark.
From an initial reading of its operating style, it seems that the lethargy in its operations stems either from an over-conservative form of functioning or its inability to attract investors in its funds. The latter seems unlikely, given that it has been able to get contributions from a diverse range of entities including sovereign funds, foreign governments, investment companies and domestic private entities like insurance firms, banks and more. Consequently, it is more likely that NIIF has been overcautious while picking its investment venues and maybe even partners.
One plausible reason for the slow uptake of investments might be the generally stricter-than-usual due diligence norms for infrastructure funding, owing to long gestation periods and front-heavy investment requirements. However, there is no denying that there are firms that have not only maintained such standards and avoided the allure of irrational exuberance, but have also managed a steadily growing credit supply to the infrastructure sector. In such a scenario, NIIF’s lagging modus operandi seems to be a classic case of “once bitten, twice shy,” owing to the current investment environment, wherein a large chunk of NPAs accruing to banks and other financial institutions are emanating from the infrastructure sector.
Additionally, the worsening of the twin balance sheet problem, which has its origins in the larger NPA crisis plaguing the banking sector (the primary infrastructure fund provider in the country), is also a major reason why NIIF needs to show urgency in making infrastructure investments. It is, however, not the only one as there is also a political consideration requiring NIIF to speed up its operations.
It has seldom been the case that a project initiated by one political regime is continued as business-as-usual by the regime succeeding it. This is especially true if it is under-performing to begin with, for then there is added legitimacy for scuttling it. Keeping this in view, NIIF (a project of the current regime) may have less than 10 months left to prove its mettle and be saved from finding its place on the list of schemes sacrificed at the altar of political retribution.
Given the aforementioned, NIIF has definitely gained momentum of late and it must not sacrifice this by constraining its investment strategy profile. It must rethink its investment strategy in order to realise its raison d’être, which, as outlined in the Budget Speech of 2015, states that it would “raise debt, and in turn, invest as equity, in infrastructure finance companies such as the IRFC and NHB … (which) can then leverage this extra equity, many fold.”
Equipped with an enviable war chest of funds, NIIF must seek out investment opportunities on a war footing by letting go of its garb of over-cautiousness and whatever else is holding it from investing. What becomes of NIIF and the projects that it undertakes will depend on its ability to improvise, and be flexible in utilising its opportunities.
By Prithu Sharma, Research Associate, Pahle India Foundation. Views are personal