Budget 2020: ADIA, other sovereign wealth funds get a helping hand for infra bets

Abu Dhabi Investment Authority and other sovereign wealth funds looking to invest in India’s infrastructure sector will receive tax sops, finance minister Nirmala Sitharaman said on Saturday.

Presenting the budget for 2020-21 to parliament, Sitharaman proposed full tax exemption to interest, dividend and capital gains income on investment made in the infrastructure and other notified sectors. The investments must be made before March 31, 2024 and have a minimum lock-in period of three years, she said in her budget speech.

This will encourage investments in priority sectors by sovereign wealth funds of foreign governments, she said.

Initial reactions from the industry were positive. “This is a big step to boost infrastructure investments in the short term,” said Vivek Gupta, partner and national head, M&A and private equity, tax, KPMG in India.

Gupta also said that sovereign wealth funds owned by foreign governments will benefit, if they invest directly in an infrastructure project.

However, it is not yet clear if a limited partner-style investment by a sovereign fund in a private equity or venture fund will benefit from this proposal. So, a typical PE firm or pension funds may not benefit, Gupta said.

Sitharaman specifically mentioned ADIA, the sovereign wealth fund of the Gulf emirate, as a beneficiary of the budget proposal though she didn’t explain the reason for doing so.

ADIA, the world’s third-largest sovereign wealth fund, has emerged as an active investor in India’s infrastructure sector in recent years. It invests in both publicly listed and privately held companies.

In its most recent bet, ADIA joined two other investors to pump $1.07 billion in GVK Power & Infrastructure Ltd to help the company increase its stake in the operator of the Mumbai airport. Canada's Public Sector Pension Investment Board and the Indian government-backed National Investment & Infrastructure Fund (NIIF) were the other investors.

Also last year, ADIA invested an additional amount in renewable power producer Greenko Energy and came in as an anchor investor in Shapoorji Pallonji Group company Sterling & Wilson Solar Ltd ahead of the solar engineering firm’s initial public offering.

Previously, ADIA had invested $1 billion in NIIF in 2017.

Another prominent sovereign wealth fund that actively invests in India is Singapore’s GIC Pte Ltd. GIC has invested in Greenko and a number of other infrastructure companies. GIC makes both direct investments and acts as a limited partner to alternative investment funds.

Last year, it agreed to join the Tata group and stressed assets investor SSG Capital Management to invest in GMR Airports Ltd.  It also joined Canadian investor Brookfield Asset Management Inc. in a $3.7-billion deal to invest in Reliance Industries Ltd’s telecom tower assets.

Kuwait Investment Authority and Alaska Permanent Fund Corporation, the oil wealth fund of the US state of Alaska, are among the other sovereign funds that invest in India.

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