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Infrastructure boost from NIIF likely soon; Temasek, Abu Dhabi Investment close to scripting first deal

by July 19, 2017 General
Temasek, Abu Dhabi Investment, infrastructure Although it’s still unclear how much of investment Temasek could put in, industry sources peg it at roughly billion.

The National Investment and Infrastructure Fund (NIIF) is in an advanced stage of talks with two sovereign wealth funds — Temasek Holdings of Singapore and Abu Dhabi Investment Authority (ADIA) — for investments and is close to its first major deal since it was set up more than a year and a half ago, sources told FE.

Temasek Holdings managing director (India) Promeet Ghosh met senior finance ministry officials last week on the planned investments in the infrastructure sector, one of the sources said. The government is also holding discussions with ADIA as well, which is likely to commit $5-10 billion, with matching contribution by the Centre for investments in the energy sector, another official said.

Although it’s still unclear how much of investment Temasek could put in, industry sources peg it at roughly $1 billion. Already, the asset base of Singapore’s state investor in India is estimated at $10 billion. The company’s investments in India are roughly 5% of its S$270-billion portfolio globally.

The government had earlier signed memorandums of understanding with Qatar Investment Authority and Russia’s Rusnano OJSC, apart from ADIA, for investments under the NIIF framework.

In April, during the visit of British Prime Minister Theresa May, India and the UK announced the launch of a Green Growth Equity Fund to attract private sector investment from that country to green infrastructure projects in India. The two countries had agreed to anchor investments up to £120 million each in the joint fund, which will be set up under the NIIF framework. Although no investment has flowed in yet following this agreement, official sources said work is on on this front.

Earlier this year, finance minister Arun Jaitley had said the country required investments worth an estimated Rs 43 lakh crore (about $646 billion) in the infrastructure sector over the next five years. As much as 70% of this requirement will be in power, roads and urban infrastructure. Since most public-sector banks are struggling to cope with toxic assets, their ability to fund large infrastructure projects is very limited. So funds for infrastructure from other sources, including NIIF, assume importance.

The NIIF and its sub-funds are supposed to invest in infrastructure projects — greenfield, brownfield and stalled. The NIIF will have an initial corpus of Rs 40,000 crore, of which 49% will be contributed by the government. The remaining 51% is to be raised from sovereign wealth funds, other global long-term investors and public-sector units.

The government has already approved its contribution of Rs 20,000 crore towards the NIIF. Of this, however, only Rs 1,000 crore has been budgeted for 2017-18, down from the BE of Rs 4,000 crore for the last fiscal. The reduction in budgetary allocation for 2017-18 was mainly in the light of the trend last fiscal. Since the NIIF couldn’t attract any foreign or domestic fund or company last fiscal, the government wasn’t required to contribute anything either. So it disbursed only Rs 15 crore to the NIIF last fiscal to just take care of its administrative expenses. However, since sovereign wealth funds are now likely to invest, the government, too, has to raise its budgetary support for the NIIF for the current fiscal from its committed corpus.
The NIIF was set up as a trust under the provisions of the Indian Trusts Act, 1882.

The NIIF was registered with Securities and Exchange Board of India as a category-II alternate investment fund in December 2015. The fund was set up as a fund of funds, with an aim to generate risk-adjusted returns for its investors alongside promoting infrastructure development and technology in the country.