Cabinet approves Capital infusion into NIIF Infrastructure Debt Financing Platform comprising Aseem Infrastructure Finance Limited and NIIF Infrastructure Finance Limited

The Union Cabinet, chaired by the Prime Minister, Shri Narendra Modi has given its approval to the proposal for equity infusion by Government of ₹ 6000 crores in NIIF Debt Platform sponsored by National Investment and Infrastructure Fund (NIIF), comprising of Aseem Infrastructure Finance Limited (AIFL) and NIIF Infrastructure Finance Limited (NIIF-IFL), subject to the following conditions:                 

1. That only ₹ 2,000 crore would be allocated during the current year 2020-21. However, in view of the unprecedented financial situation and availability of limited fiscal space due to the prevailing COVID-19, the proposed amount may be disbursed only if there is readiness and demand for debt raising.
2. NIIF will take all necessary steps to use the equity investments from Domestic and Global pension funds and sovereign wealth funds expeditiously. 

This was one of the twelve key measures made by Union Minister for Finance & Corporate Affairs Smt. Nirmala Sitharaman, as part of Government of India’s stimulus to the economy, under Aatma Nirbhar Bharat 3.0 on 12^th November, 2020.

The NIIF Strategic Opportunities Fund has set up a Debt Platform comprising an NBFC Infra Debt Fund and an NBFC Infra Finance Company. NIIF through its Strategic Opportunities Fund (‘NIIF SOF’) owns a majority position in both the companies and has already invested ~ ₹ 1,899 crore across the Platform. The Strategic Opportunities Fund (SOF fund) through which the NIIF investment has been made will continue to support the two companies apart from investing in other suitable investment opportunities.  The current proposal seeks GOI investment directly to further scale the potential and impact of the two entities in the infrastructure debt financing space. This will also support the efforts of the platform to raise international equity. With the fresh infusion of equity by the government, besides the equity already infused by NIIF SOF and potential equity participation from the private sector, the debt platform is expected to raise enough resources to extend debt support of ₹ 1,10,000 crore to projects by 2025.

Implementation strategy and targets:

1. The strategy is AIFL will predominantly focus on under construction / greenfield / brownfield assets with less than one year of operations. NIIF Infrastructure Debt Financing Platform will have its own in-house appraisal system, which will enable faster deployment of funds.
2. NIIF IFL (NBFC-IDF) will operate as a take-out vehicle for mature operating assets. It will help infrastructure investors in replacing high cost bank finance with cheaper IDF finance post-commissioning. Over the next 5 years (NIP Plan Period), NIIF Infrastructure Debt Financing Platform can potentially support the construction of infrastructure projects worth ~ ₹ 100,000 crore. 
3. The Platform will also need to raise external long-term equity capital as well as debt from both domestic and international markets over the next few years which could result in a multiplier of 14 -18 times of the proposed capital infusion of up to ₹ 6,000 crore from GOI.
4. NIIF will make strong efforts to use the equity investments by Government to catalyse equity investments by Domestic and Global Pension, Insurance and Sovereign Wealth Funds in the NIIF Infrastructure Debt Financing Platform.

Expenditure involved:

₹ 6,000 crores will be invested as equity in the NIIF Debt Platform over two financial years, i.e., 2020-21 and 2021-22.

Impact:

NIIF Infrastructure Debt Financing Platform is expected to contribute nearly ₹ 1 lakh crores in debt to the infrastructure sector over the next 5 years.  This will act as a catalyst in attracting more investments into the infrastructure sector as envisaged in National Infrastructure Pipeline.

This process will also help relieve exposure of banks to infrastructure projects and free up space for new green-field projects. Strengthening the IDF / take-out financing space in the infrastructure sector will support enhance liquidity of infrastructure assets and lower the risks.

In India, infrastructure projects are executed through SPVs.  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 lowers 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. 

It is expected that well-capitalized, well-funded and well-governed NIIF debt Platform can play a major role in infrastructure financing and development of Bond Market in India by acting as a AAA/AA-rated intermediary between the bond markets and infrastructure projects and companies.

Background: 

As per the National Infrastructure Platform (NIP), investment in infrastructure sector is targeted at ₹ 111 lakh crore over the next 5 years across various sub-sectors, creating substantial need for debt financing. This would require at least ₹ 60 to 70 lakh crores in debt financing. This current environment requires well-capitalized specialized infrastructure focused financial institutions, such as the ones being developed by National Investment and Infrastructure Fund (NIIF), which can focus on lending across the project life cycle with a strong capital base and expertise driven approach.