In the past several years, infrastructure has become a focus sector in the Indian economy as it is expected to boost overall development. Infrastructure continues to attract attention not only from the government but also from the international financial institutions (IFIs) and private investors.
Infrastructure includes power generation and transmission, highways, ports, bridges, dams, industrial zones, railway freight corridors, inland waterways, mega solar parks, port modernisation and urban infrastructure development, which includes projects related to smart cities, metro rail, housing, water supply and sanitation. To push infrastructure development, the government has announced the implementation of mega infrastructure projects such as smart cities, industrial corridors, freight corridors, waterways, Bharatmala, Sagarmala Programme, etc.
Several national and international agencies have been coming out with regular estimates of investments required for infrastructure development in India. For instance, NITI Aayog estimates that the country would need around $4.5 trillion for its infrastructure by 2040. Global Infrastructure Outlook observes that until 2040, India needs around investments worth USD 4.5 trillion. The International Finance Corporation’s (IFC), Climate-Smart Investment Opportunities in Infrastructure Sectors, estimates that between 2018 to 2030, India needs USD 2.2 trillion. Asian Development Bank (ADB) estimates that the cost to address India’s infrastructure deficit is around USD 230 billion per year, which if climate-adjusted, will grow to USD 261 billion in 2016-2020. Under the Union Budget 2019-20, Government of India has given a massive push to the infrastructure sector by allocating Rs 4.56 lakh crore (US$ 63.20 billion) for the sector. Similar projections by the World Bank, the Asian Infrastructure Investment Bank (AIIB) and others.
Among the various institutions and agencies involved in planning and executing programs in the sector include IFIs such as the World Bank, ADB, IFC, AIIB, New Development Bank (NDB). Besides, several bilateral agencies from different countries are also showing keen interest, such as JBIC, JICA, KfW, AFD, USAID, etc.
Apart from the above, a set of recently formed Financial Intermediaries (FIs) are now being used to attract institutional and non-institutional investors in the infrastructure sector in India some of the prominent ones are – National Investment and Infrastructure Fund (NIIF), India Infrastructure Fund (IIF), India Infrastructure Finance Company Limited (IIFCL), Tamil Nadu Infrastructure Fund Management Corporation Ltd. (TNIFMCL), etc. The national financial institutions are also deeply involved in funding infrastructure projects in the country. These include the Public Sector Banks, LIC, PFC, REC, etc.
In the past few years private investments funds such as – IFC Emerging Asia Fund, AIG Asian Infrastructure Fund, AIF Capital’s Asian Infrastructure Fund I and pension systems of countries such as Canada, US, Sweden, India, etc. have increased the focus of their investments in the Indian infrastructure sector. According to a recent IJGlobal report, 36 active funds are focusing on India primarily and have targeted investment of $90 billion of capital. For investment, the country depends on investment funds from inter-governmental cooperation, as well as private capital.
The report further says that Global Infrastructure Partners, a global private investment firm, has confirmed in January 2019 that it was launching an India-focused infrastructure fund. Similarly, Actis, a private investor in emerging markets and based in London, is looking to grow its presence in the country by creating a new company to house its operational renewable energy assets in India. Canadian pensions manager CDPQ bought a 40% stake in power generation company Chinese Light and Power India in September 2018. Its portfolio is a mix of renewable and convention power assets with a total generating capacity of 2.95GW. Further, the UAE-India Infrastructure Investment Fund is a $75 billion partnership between the UAE’s sovereign wealth fund and NIIF. India is working with Russia, the UK, Japan and other major developed countries on similar investment vehicles.
Continuing with NIIF for now as an example will broadly give an idea about some of the current trends in investments and the intertwining of private and public funds in the infrastructure sector. NIIF has been created to foster investment in the infrastructure sector in India. The Government of India will take a 49% stake in NIIF, and aims to raise additional capital from long term investors, such as sovereign wealth funds, insurance and pension funds, endowments, and other private investors. The fund will use sector-specific platform companies as primary investment vehicles in partnership with a limited number of financial investors.
NIIF manages three funds –
- NIIF Master Fund – approx. US$ 5.6 billion
- NIIF Fund of Funds – approx. US$ 2.5 billion (AIIB US$ 200 million investment)
- NIIF Strategic Investment Fund – US$ 2 billion target
NIIF has recently announced in 2019 that two institutional investors have agreed to invest up to $1 billion each, it’s Master Fund reaches its third close. Australia’s largest superannuation fund by member assets, AustralianSuper, and Ontario Teachers’ Pension Plan (OTPP) – Canada’s largest single-profession pension plan – have signed commitments of $250 million each in the Master Fund and co-investment rights of up to $750 million each in future opportunities alongside the fund.
Singapore government-owned investment company Temasek has committed up to US$ 400 million to NIIF.
NIIF Master Fund includes –
- India Government – 49% of Rs 400 billion (US$ 5.6 billion) target or Rs 200 billion
- Abu Dhabi Investment Authority – US$ 1 billion
- AustralianSuper – US$ 1 billion
- OTPP – US$ 1 billion
- Temasek – US$ 400 million
- Axis Bank
- Housing Development Finance Corporation (HDFC Group)
- ICICI Bank
- Kotak Mahindra Life Insurance
With this third close, NIIF Master Fund is the largest infrastructure fund in India with assets under management of more than US$ 1.8 billion and a co-investment pool of US$ 2.5 billion. It involves investing in equity and equity-like securities in core infrastructure sectors in India, with a focus on transport, energy and urban infrastructure and has a life span of 15 years.
NIIF Strategic Investment Fund has a US$ 2 billion target. Its first investment was its acquisition of a 58.89% equity stake in IDFC Infrastructure Finance, a private infrastructure debt fund. IDFC IFL invests in operating projects with at least one year of satisfactory commercial operations in power transmission, renewables, roads, social infrastructure, telecom towers.
NIIF, along with EverSource are going ahead with an investment in Ayana Renewable Power. EverSource – a JV between Lightsource BP and Everstone Group and Ayana, is a renewables platform backed by CDC, the UK’s development finance institution.
NIIF and the sovereign fund Abu Dhabi Investment Authority (ADIA) are negotiating to jointly buy a 49% shareholding in the airports holding company of GVK Power & Infrastructure. GVK Power & Infrastructure intends to use the proceeds towards retiring debt obligations. The company initiated this equity sale process to raise capital to reduce debt obligations of up to Rs 57.5 billion (US$ 828 million). GVK Airport Holdings manages and operates the Chhatrapati Shivaji Maharaj International Airport (CSMIA) in Mumbai and has won the mandate to build and operate the new airport at Navi Mumbai. GVK Airport Holdings owns a 74% stake in the concessionaire.
IIFCL one of the other major FI is also moving quickly to increase investments in the Indian infrastructure sector. Its Annual Report for 2018-19 notes that during 2017-18, the company made incremental gross sanctions of Rs 3,609 Crore under direct lending. The cumulative gross sanctions under direct lending stand at Rs 81,040 Crore to 459 infrastructure projects at the end of March 2018. As on 31st March 2018, out of 357 net sanction projects under direct lending, 331 projects, i.e. 93 per cent have achieved financial closure.
IIFCL’s wholly-owned subsidiary in London, IIFC (UK) has made cumulative loan sanctions of USD 3.84 billion and cumulative disbursements of USD 1.99 billion till March 2018. IIFCL Asset Management Company Limited (IAMCL), another wholly-owned subsidiary of IIFCL, closed its IDF Series II AAA IDF-MF rated scheme with six institutional investors with a fund size of Rs 200 Crore in April 2017. IAMCL has also obtained approval to launch an Alternative Investment Fund (AIF) dedicated for Investment in debt instruments/securitized debt instruments of renewable energy, water sector and other sectors as per Green Bond principles.
IIFCL Projects Limited (IPL), the third subsidiary of IIFCL, is looking to provide services including infrastructure advisory, financial advisory, transaction advisory, project structuring, appraisal, etc. In 2018-19, IPL was awarded a consultancy and transaction advisory mandate by Himachal Pradesh Infrastructure Development Board (HPIDB) for setting up solid waste processing and disposal facility in seven clusters in the state of Himachal Pradesh. IPL is assisting OUIDF (Odisha Urban Infrastructure Development Fund) in Project Development & Appraisal with all the ULBs in Odisha for the fourth year in running. IPL bagged repeat mandates from large renewable energy developers like Skeiron Renewables and Jindal Urban Infrastructure limited for appraisal and syndication. Ministry of Shipping (MOS) continues engagement with IPL for its programme Sagarmala Development Company Limited (SDCL).
IIFCL has committed lines of credit to the extent of ADB (USD 1.6 billion), World Bank (USD 195 million), European Investment Bank (EIB) (Euro 50 million) and KfW (Euro 200 million). The Euro 50 million line of credit from KfW has been fully availed for investments in two hydropower projects and three solar power projects. IIFCL had also executed a Financing Contract agreement with EIB on 31st March 2014 and has been fully utilized by drawing Euro 200 million as on March 2017. A line of credit of JPY 50 billion has been signed with Japan International Cooperation Agency (JICA) from which JPY 1 billion has been drawn as on 31st March 2018. A further line of credit from ADB of USD 300 million and EIB of Euro 200 million has also been sanctioned as on 31st March 2018. 
The brief examples of these two major FIs show the links with large institutional financiers, financial trends and the new mechanisms being used to fund the infrastructure projects in the country. The amount of funds targeted and raised by these FIs indicate the interest they have been able to generate from financial institutions to use these intermediaries to invest in such projects. It can also be seen that these financial institutions have been able to blur the lines between the public and private funds as these have been intricately interwoven and are then further used to fund projects through various subsidiaries or platform or sectoral companies. The funders include not only the IFIs, but also pension funds, sovereign funds, banks, bi-lateral agencies, etc. It appears that almost all of the funds raised by these agencies are being used to invest in infrastructure projects implemented by private companies. The lack of mechanisms and policies of FIs to protect the environmental and social aspects is a serious concern as well.