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Innovative Financial Vehicles

Explore Tamil Nadu's financial landscape and the role of innovative funding vehicles in providing Sharia-compliant investment opportunities, amidst the state's impressive economic growth and skilled manpower. Learn about the strategic infrastructure development, urbanization, and investment opportunities in Tamil Nadu, a top destination for FDI in India.

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Innovative Financial Vehicles

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  1. Innovative Financial Vehicles Their role in providing Sharia compliant funding and investment opportunities

  2. Tamil Nadu - One of the most attractivegrowth spots in India DecadalGDP growthrate 9.3% SKILLED MANPOWER GDP FDI URBANIZATION ECONOMY EXPORTS Second largest Economy among Indian states 18% of institutions of higher learning in India One Mn graduates/ Diploma holdersper annum GDP in 2015-16:USD 167 B USD 32 B in exportsin 2016-17 Fourth among all Indian states Top Three FDI destinations in India Total amount of FDI USD 22.64 B (2000-16) Most urbanized state 48.5%

  3. It is the hub to a variety of industries across sectors State as a proportion of Indian Industry #1in Renewable Energy Top 10Global Auto Hubs 2ndLargest software exporter in India #1 in electronic exports, Largest No of electronic SEZ’s (23) 40% of installed spinning capacity and 35% of yarn production Over 54 Fortune 500 companies are based in TN

  4. TN’s superior infrastructure facilitieshave contributed to its leadership position 62017 kms. Strong road density – 2.5 times the national average 15% of the Major Ports capacity with 4 large ports; only State with 4 International Airports 20 GW 2nd largest power generation #3 in India with 20 Industrial Parks and 78 Special Economic Zones 7 GW 5th largest wind power capacity in the world 8.4% of Total Subscriber Base - highest tele-density in India 18% Highest No of India’stechnical universities A prosperous state, where people pay for good service: Infrastructure creation is demand driven

  5. Tamil Nadu leads India in affordable housing(among other social indicators) No.1 State in the country in terms of number of housing units sanctioned under PMAY Govt. of TN has constructed 300,000 under the Green Houses which provides for housing to the rural poor people along with Solar Powered Home Lighting System in 5 years TN Housing Board (TNHB) and TN Slum ClearanceBoard (TNSCB) have constructed 94,000 homes 20,000 new houses being built every year. Approval obtained for 187,679 units under “Housing for All”

  6. TNIDB – nodal agency to promote infrastructure • TNIDB set up under The Tamil Nadu Infrastructure Development (TNID) Act, 2012 , headed by Hon’ble Chief Minister • Tamil Nadu Infrastructure Development Fund (TNIDF) of USD 274 Mn for Viability Gap Funding, if required and USD 41 Mn for financial support for Project Preparation • Model Concession agreements in place • Tamil Nadu Transparency in Tenders (PPP Procurement) Rules, 2012 provides for a level playing field to PPP players Identifying, conceiving and implementing projects Enablingprivate sector participation Partnering with Expert Agencies Transparent procurement processes Creatingan enabling environment A robust institutional framework for infrastructure development

  7. We create financial institutionsto fuel our growth – 4 Generations of FIs Tamil Nadu Industrial Investment Corporation (TIIC) to assist industries Public Sector Company 1949 Public Sector Non-Banking Financing Companies (NBFC) registered with Reserve Bank of India 1975 TN Transport Development Finance Corporation Ltd (TNTDFC) 1990 TN Urban Finance and Infrastructure Development Corporation Ltd (TUFIDC) 1991 Tamil Nadu Power Finance & Infrastructure Development Corp. Ltd (TNPFIDC) Joint Sector (Government and Private venture) Asset Management Company (AMC) 1996 TN Urban Infrastructure Financial Services Ltd (TUIFSL) • Government is a minority stakeholder • Funds are raised through investment trusts • Funding through multilateral and bilateral borrowings and through long term bond issuances in the market • Partnership with IL&FS, HDFC and IFC to create a grant fund management company for infrastructure • Funding only to urban infrastructure projects of Urban Local Bodies Tamil Nadu Infrastructure Fund Management Company (TNIFMC)and new Infrastructure Financing Vehicles (IFVs) SEBI Registered Vehicles 2016

  8. Methods of innovative financingin infrastructure and housing • AIF: Alternative Investment Funds, regulated by Securities & Exchanges Board of India. At least 75% in brownfield assets and rest in operating assets. • Equity or profit-sharing debt instruments • Intended for investors willing to invest at least 1 crore • REIT/ InvIT : Real Estate Investment Trust & Infrastructure Investment Trusts, regulated by SEBI meant to provide liquidity for completed assets • Once a building is complete and rented it is placed under a Trust and can be listed on a stock exchange or sold like a debenture. • REMF: Real Estate Mutual Fund, regulated by SEBI, can buy REITS, completed projects, real estate companies and SPVs. • Intended for investors willing to invest at least 2 lakhs • Structured Instruments: Shares, Debentures or Bonds with a finite life which are like contracts defining re-payment and profit-sharing terms • All the above can be made specific to affordable housing • Advantages of SEBI Regulated vehicles • Robust international quality regulations

  9. Challenges Government is thebiggest originatorsof infra projects, but Lacks understanding of Private finance Project Revenue Modeling is limited Each state is Different But Private Funders are National Funding model:grants, budget,banks andcontractors Judicial &Social Risks Risks ofchasing normalPE level returns,get accentuated Inability of InvestmentManagers To work with Government Need toavoid investor/originator Conflict of interest

  10. TNIFMC – Investment management with Government insight Independent “Insider” “Dual Discipline” Team Board run company MarketCompensation aligned to performance Arm’s length IC Specialized Investment Contracts to Mitigate execution, Payment & exit risks Separate project origination Team – GoTN & Investment experts Investment Team Includes SAI expertise Appreciating our model, Asian Development Bank (ADB) has provided Technical Assistance

  11. Infrastructure AIFs – industry scenario and us JOURNEY INJUST OVER A YEAR TNIF has raised USD 312 mn TNSF commitment USD 20 mn

  12. Tamil Nadu Infrastructure Fund – PPM Brief ShareClasses ManagementFees Fund objective Closings Term Target Returns To invest in infrastructure projects/ undertakings within India’s most advanced province of Tamil Nadu. Focus on ESG assets Share Class A: LP Class (Equity and debt) A1: Equity exclusion class – ESG Rated by Moody’s (ICRA) First Close: USD 312 M domestic Second Close: @ USD 1 B, international 10 years(3-5 years investment,5-7 years holding)+ 2 years exit 1.5% p.a. 10% carry Set-up cost of upto 2.5% Hurdle Rate: A1 – 8% Others – 10% Target Rate: 6% over hurdle rate

  13. Tamil Nadu Shelter Fund – PPM Brief ShareClasses ManagementFees TargetReturn Fund Closings Term A Category I (Social) Alternative Investment Fund regulated by SEBI, India’s Capital Market Regulator Share Class A: LP Class B: Catalytic First Loss Capital C:Grantor’s class Target Commitments –INR 30 Bn Commitments: GoTN – INR 1.5 Bn 5 Years Extendable by 2 years to facilitate exit 1% p.a. 10% carry Set-up cost 1% Hurdle – 6% Preferred – 4% over Hurdle Target – 12%

  14. Highlights of current state of preparedness USD 50 M Catalytic Capital invested by GoTN/ JICA Asian Development Bank providing Technical Assistance 6 Transactions that can be concluded – 8 are work in progress Team set up with of specialists and committed government experts • First close in India USD 312 M • Leading banks, insurance companies and global investors • First Close – October 19th, 2018 Investment Manual & Risk Manual Developed by E&Y Investors can access a complete “Data Room” First contract for participating debt instrument - TANGEDCO Fund Rated by ICRA-Moody

  15. Some key features of our investment instruments • Credit enhancement by promoter or Government (“project originator”) • Preservation of capital in rupee terms • Protection of capital in USD terms • Returns from profit participation • Asset backed investment • Contracts framed keeping policy guidelines in mind • Aim: • Ensure 6% CAGR • Protect 15% CAGR • Share returns above 15% in favor of originator • Conform to SEBI (Issuance & Listing of Debt Securities), Regulations • Structured to conform to SEBI Green Bond Circular (future-proofing)

  16. TNIF & TNSF can provide SUKUK-like investments Investing in Tamil Nadu Infrastructure for Shariat Investors

  17. My understanding of the core principals Principle - 3 All investments Are at project Level – not in Share Market Principle - 2 TNSF invests in Equity or profit-sharing bonds Principle - 1 TNSF will not invest In NBFC/ HFCs Invest in Real Assets- No Masir Profit sharing Deep Discount Bonds- No Riba Non-speculative/ Certainties- No gharar TNIFMC can support investors who wish to obtain their own Shariat Compliance Certification

  18. WIEF-UEF and the TNIFMC opportunity Yes – TNIF and TNSF in Share Class A1, provide for interest free investment with capital protection/ preservation which could act like a Sukuk Do you see a scope of using interest free financing mode to support the government’s initiative of providing affordable housing? TNIF, TNSF and structured instruments such as “Outcome Based Bonds” Which specific interest free instruments can be appropriate in Tamil Nadu context? We can create a sub-class, if the sum is large enough (USD100 million+), specifically for re-development of waqf property What role Islamic social financecan play in developing waqf housing projects?

  19. What we suggest… • Tamil Nadu Shelter Fund is a Social Investment • People: must aim to bring a social benefit to a deserving class of people • TNSF target - provide quality affordable housing at a profit of around 12%-14% • Planet: must aim to benefit the environment in some way • TNSF obtains the IFC Edge certification for our buildings, thus reducing the carbon footprint of the beneficiary • Profit: the investment must deliver a moderate financial return • The fund can also accept grants from persons who wish to subsidize some part of the project, so as to attract Social Investment • A special share-class can be created within the fund to eliminate borrowing and provide 100% equity/ structured funding • WIEF could consider raising a sum for investment into affordable housing to be developed on Waqf land or other land for interest-free financing

  20. Thank You

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