India’s NIIF buys IDFC’s infra debt arm

India’s government-backed National Investment and Infrastructure Fund has acquired IDFC Infrastructure Finance Limited, the infrastructure debt business of IDFC.

The deal is the first investment NIIF is making through its Strategic Fund, a vehicle launched this year to target investments in sectors that will “benefit from India’s growth trajectory over the medium-to-long term,” according to the NIIF website.

“NIIF feels that the acquisition of IDFC-IFL at this juncture is a good fit with its strategy as there is clearly a gap in the market right now coupled with a huge market need,” NIIF’s managing director and chief executive Sujoy Bose told Infrastructure Investor. The Indian government estimates the country will need an investment of $4.5 trillion through 2024 to fill its infrastructure gap.

The transaction comes as concerns intensify about financial institutions’ exposure to bad loans in the infrastructure sector. Infrastructure Leasing & Financial Services, one of the largest infrastructure developers and financiers in India, has defaulted on several payments since August, and two financial advisers are currently drafting a restructuring plan that might involve the sale of most of its assets.

IDFC’s infrastructure financing arm has a loan book of more than 45 billion rupees ($621 million; €542 million), strong asset quality and no material repayment obligations for the next two years, NIIF said in a statement. According to IDFC-IFL’s latest financial report, the company’s net worth stood at 7.7 billion rupees and did not have any non-performing assets in its portfolio, as at 30 September.

“With an infrastructure debt platform having a healthy portfolio, strong systems and processes and an experienced management team, NIIF can reach out to a wider section of international investors who are willing to participate in the Indian infrastructure growth story but are not able to take a full equity exposure,” Bose commented.

IDFC-IFL can only invest in infrastructure projects “which have completed at least one year of satisfactory commercial operations”, in both the PPP and non-PPP space and in the following sectors, according to its website: renewable power, roads, transmission, telecom towers and social infrastructure.

NIIF confirmed to Infrastructure Investor that the strategy of IDFC-IFL will not be modified, and that the management team of the company will remain in place post acquisition. It did not, however, disclose financial details about the deal.

While the non-banking financial services sector currently faces headwinds, Bose stressed the government’s efforts in “de-bottlenecking infrastructure sectors, creating enabling financing models – such as infrastructure investment trusts, infrastructure debt funds and the NIIF – and undertaking critical financial reforms” to transform India’s infrastructure sector.

The sale of IDFC-IFL comes just a few months after the Bombay-listed financial institution sold IDFC Alternatives’ infrastructure business to New York-based Global Infrastructure Partners, leading to the launch of GIP India. According to MK Sinha, who transitioned over to the new entity as managing partner and co-head, “the intent is to sell all of IDFC Alternatives’ verticals over time,” which comprise a private equity and real estate business.

It is unclear whether the sale of IDFC-IFL, which is separate from IDFC Alternatives, is part of the parent company’s strategy to sell its alternatives asset management business. Another IDFC subsidiary, IDFC Bank, is in the process of merging with Indian retail lender Capital First.