I see a great future and bright investment opportunity for many investors in infrastructure.
P R Jaishankar
India’s infrastructure sector has seen tremendous growth in the last two decades. The sector is a crucial propeller of the Indian economy and has contributed significantly to the growth story of the country.
Assets that were started in 2005-2010 have started yielding results now. By 2018-2020 assets being created in the early phase, were completed. The completed assets started earning revenue and became an asset class of its own. That has again evinced interest of investors. Almost 45 per cent of infrastructure assets are now completed and earning revenues. Today, Rs 29 lakh crores is the loan book of banks and the NBFC infrastructure finance companies. Approximately, Rs 13 lakh crores is the potential new-age asset class which is up for churning. This Rs 13 lakh crores can be a source of capital for doing more business without additional capital.
With infrastructure evolving as a bright destination for investors, a number of investors already having had a feel of the market, big funds - provident funds, superannuation funds and insurance funds which have globally been seeking to invest in infrastructure projects, are making a beeline into India. Airports have seen major influx of greenfield investments. Investors have now started investing in other areas such as expansion of airports. The Foreign Institutional Investors (FIIs) have also started investing. The game is just beginning. And I see a great future and bright investment opportunity for many investors in infrastructure.
In fact, the new phase of growth has already started to take shape with strong pick up in M&A activity, new age instruments like infrastructure investment trusts (InvITs) and an influx of foreign capital through globally reputed pension and insurance funds such as Canada Pension Plan Investment Board (CPPIB), Caisse de dépôt et placement du Québec (CDPQ), IFC, Abu Dhabi Investment Authority (ADIA), among others. Bonds are another great instrument to realise huge investments in infrastructure especially roads, that are crucial to the socio-economic development of our country.
What is the role of financing in the current infrastructure projects in India?
The availability of appropriate infrastructure facilities is vital to the economic growth and prosperity of any country. The infrastructure financing landscape has largely taken shape since the onset of the new millennium. In an endeavour to channelise funds towards the infrastructure sector and provide long-term funds to PPP projects, India Infrastructure Finance Company Limited (IIFCL) was set up in 2006 by the Government of India. It was a one-of-a-kind institution that was set up to cater to the needs of all the sub-sectors of infrastructure.
Overall, the infrastructure financing landscape has been shaped by a combination of triumphs and setbacks. Throughout the trajectory of infrastructure financing, a multitude of significant developments have transpired. A crucial facet of infrastructure financing during its nascent stages revolved around asset creation. Various financial institutions were diligently focused in pursuit of the strategy for asset creation.
From 2018 onwards, the industry witnessed the successful delivery of completed assets in key sectors like Roads, Airport, Renewable Energy, etc. This presents a lucrative opportunity for foreign institutional investors, pension funds and domestic institutional investors in the bond market. Due to the considerable progress made in the sector, a plethora of investment opportunities have emerged to serve a wide range of potential stakeholders. Greenfield investment continues to be at the core of esteemed financial institutions, including IIFCL, PFC and REC.
How is IIFCL catering to the financing needs of India’s infrastructure sector? What are the key products and services offered?
Apart from being an innovative lender, IIFCL has undertaken numerous innovative measures to provide support to infrastructure projects that have been funded by a consortium of banks. IIFCL is also acting as a Lead Lender in various infrastructure projects, including in the country’s first railway station redevelopment project.
We have also been playing a pivotal role in India’s ambitious targets in the energy space by financing green energy projects. IIFCL has provided financial assistance of ~Rs 23,296 crore to about 130 Green Energy projects with total capacity addition of ~17 GW, which is about 10% of India’s total installed capacity of 160 GW. IIFCL is also pushing forward for inclusion of Electric Vehicles, Green Hydrogen and Space infrastructure in the ‘Harmonised List for Infrastructure’ hence opening up an array of funding avenues. This would enable raising long-term low-cost funds that would eventually translate into lower cost for end user, benefiting the economy at large.
Over the course of its development, IIFCL has established itself as a pioneering financial institution by introducing a range of lending products, such as takeout financing, subordinate debt and credit enhancement. The company has been actively promoting infrastructure financing through various mechanisms, including PPPs, infrastructure bonds, InvITs, and multilateral funding.
IIFCL has made a mark in the country, not only as a financier for infrastructure projects, but also through its policy advocacy measures. Its vast experience in the sector has enabled them to identify the practical difficulties that exist in the infrastructure sector, and helped to provide recommendations for improvement in regulatory environment to make it more conducive for the overall growth of the sector.
Some of IIFCL’s contribution towards development of the infrastructure sector are development of the Hybrid Annuity Model (HAM); the 5/25 model; creation Harmonized Master List of Infrastructure Sub-sectors; and coordinating with Concessioning Authorities, NITI Aayog, Regulators and Government Agencies to expedite resolution of various pending issues in projects; innovative products like Takeout Finance and Credit Enhancement.
We have taken up several initiatives to improve the regulatory and structural environment for infrastructure financing. IIFCL is also advocating for an insurance product to cover project completion risks - known as Project Completion Risk Insurance (PCRI). This would, inter alia, require the Concessioning Authorities subscribing for insurance for making Termination Payment.
Taking its digital initiatives forward, IIFCL introduced an Online Project Monitoring System (OPMS) as an effective tool for ensuring progress-linked disbursement in infrastructure projects.
In the future, IIFCL intends to enhance its position as a pioneering infrastructure lender, primarily focused on supporting government activities relating to the National Infrastructure Pipeline (NIP) and the National Monetisation Pipeline (NMP). IIFCL also aims to contribute to the expansion of the bond market.
How do you see opportunities from different infrastructure segments for project financing?
India is in a strong position to continue its impressive economic performance and become a US$30 trillion economy by FY47. Around Rs 14,700 crore worth projects are currently under conceptualisation phase in the country, as per Invest India report, which presents significant upcoming opportunities for the private sector to provide the much-needed capital. To realise the full potential that exists in the infrastructure sector, it is imperative for the private sector and the government to collaborate and complement each other.
The government has launched several flagship initiatives to enable faster decision making, optimisation of resources and bring in efficiencies in cost of logistics. These initiatives include GatiShakti, Maritime Vision, National Logistics Policy, National Rail Vision, UDAN Scheme and Bharatmala Pariyojana.
In the Road Sector, government aims to build a two lakh-km national highway network by 2025. Coming to Airport Sector, government has provided ‘in-principle’ approval for 21 greenfield airports under the Greenfield Airports (GFA) Policy in 2008. They are under various stages of implementation and include both government-funded and PPP projects. The port sector is also making headway with government aiming to operationalize 23 waterways by 2030.
Simultaneously, the government has also focused on facilitating private sector investments through reforms in proactive investment facilitation, introduction of alternate funding avenues and simplification of exit strategies.
To become a multi-trillion-dollar economy, India will need to focus on increasing private participation further. Although multiple initiatives for private sector facilitation are in place, there is a long way to go in achieving desired private sector participation for the ambitious growth plan ahead of us. It is important for private sector players to learn from successful case studies, undertake due diligence, forge sector-specific partnerships and optimise their resources. Together, a right policy environment with diligent investors can unlock the sector’s true growth potential.
Can you highlight some of the major IIFCL-financed infra projects in India?
In the Road sector, we have been part of signature projects such as Bandra-Worli Sea Link, Delhi-Meerut Expressway, Mumbai-Nagpur Expressway, Hyderabad Outer Ring Road, and Ganga Expressway. And we are poised to significantly enhance our contribution to this sector, in line with the Government resolve. IIFCL has also financed the Pune City Metro.
IIFCL is present in almost all major airports of the country like Noida International Airport, Navi Mumbai International Airport, Vishakhapatnam Airport, Goa (Mopa) Airport etc. We have sanctioned major ports like Ramayapatnam Port Development Corporation Limited, Jindal Paradip Port Limited and Simar Port (SPPL)
In the Power sector, IIFCL has financed projects like Lalitpur Power Generation Co. Ltd. (LPGCL) and Koppal Narendra Transmission Limited. In Renewable Energy, the company has supported major projects like JSW Energy (Kutehr) Ltd, Avaada Sunshine Energy Private Limited (ASEPL) and ReNew Sun Waves Private Limited (RSWPL).
Overall, IIFCL has accorded financial assistance to projects having ~31,000 km of highways (~21% of India’s NH capacity), ~71 GW of installed energy capacity (~17% of India’s installed capacity), ~16 GW of installed renewable energy capacity (~10% of India’s installed renewable capacity) and ~800 million tons of port capacity (~33% of India’s total port capacity).
What is IIFCL’s current portfolio of infrastructure financing? What is your roadmap for India’s infra development?
IIFCL has so far sanctioned a total of more than 700 projects with a total project outlay of ~Rs 12.5 lakh crore, majority of which are PPP projects. As on November 30, 2023, IIFCL’s total sanctions and disbursements on a cumulative basis exceed Rs 2.4 lakh crore and Rs 1.2 lakh crore, respectively. Outstanding loan book of IIFCL stands at over Rs 50,000 crore as on November 30, 2023.
Coming to the roadmap for India’s infrastructure development, over the past five years, infrastructure needs have increased by 50 per cent. The number of infrastructure projects have grown from 6,000 to 9,000 in the NIP, while the amount has increased from Rs 1 trillion to Rs 1.5 trillion.
As per Budget Speech 2023-24, the ‘Effective Capital Expenditure’ of the Centre is budgeted at Rs 13.7 lakh crore, which will be 4.5 per cent of GDP. As per estimates, if India were to invest in infrastructure to the tune of 6 per cent of GDP, it will achieve a GDP level of US$ 7.5 trillion by 2030. This is also consistent with our target of becoming a US$ 5 trillion economy by 2027.
With infrastructure now being propelled by the aspirations of the people, rapid strides can be anticipated across the entire landscape over the next decade. As demand continues to rise, the government will need to effectively accommodate these aspirations. Overall, the opportunities and future of infrastructure financing are very promising.
