Governance

shareholders in NIIF Limited are commercial investors. This arrangement seeks to ensure that the government does not use NIIF to further its policy objectives, for instance, by causing NIIF funds to invest at nonmarket terms that would crowd out other commercial investors or in commercially unviable business opportunities. • Large uncovered infrastructure gap. The opportunity for commercial investing in Indian infrastructure is considered by NIIF to be very large and still mostly untapped. NIIF aims to bring sizable capital to play, thanks to the government’s commitment of US$3 billion, with about another US$3 billion to be brought by co-investors at fund level, and any other source of cofinance (equity or debt) that will materialize at the portfolio company level. as of 2018, the Ministry of

Finance estimates India’s infrastructure funding needs at US$200 billion per annum, of which US$110 billion is fulfilled—leaving a large gap of US$90 billion.

In the past, foreign and private domestic investors have made significant investments in Indian infrastructure; however, aggressive underwriting of risks, excessive use of leverage, and poor regulation led to many project failures. For instance, in the 2007–12 period, many projects and companies benefiting from large investments at the beginning of that period fell into distress, leading to subsequent investor risk aversion and capital flight from the sector (aiyar 2012).

NIIF does not have hard targets in terms of a private capital multiplier, but its very design ensures a high degree of mobilization and could lead to a multiplier estimated by NIIF at 15–20 times. In all funds, as previously discussed, commercial investors are involved directly at fund level, where they are to contribute 51 percent of the capital commitments. In addition, at the portfolio level,

• The Master Fund has the ability to set up platforms jointly with other equity co-investors. This was the case when the Master Fund took a 35 percent equity stake in the port platform, committing up to US$1 billion and attracting a 65 percent equity investment by dP World that could result in the mobilization of another US$2 billion equity. Such platform companies can also take equity co-investors in individual portfolio companies or take partial ownership of portfolio companies with existing company shareholders also remaining involved. This was the case for the port platform’s first investment in

Continental Warehousing, when the platform took a 90 percent equity stake and the company’s founder remained involved with a 10 percent stake. Finally, individual investments can also be levered. • The Fund of Funds can achieve similar mobilization ratios. The logic is the same; however, instead of taking equity stakes in platform companies, the Fund of Funds takes stakes in funds, always in conjunction with other co-investors.

The underlying funds will then invest in several portfolio companies, take full or partial equity ownership, and leverage the business if appropriate. NIIF mentioned that one of the attractions of investing in the Fund of Funds for aIIB was the possibility of generating a high multiplier, because the subfunds of the Fund of Funds would invest in a large portfolio of companies.

GOVERNANCE

The government’s investments in the three funds and its stake in NIIF Limited are overseen by the department of Economic affairs of the Ministry