India: Kotak Infrastructure Investment Fund

OBJECTIVE

To improve the financial sustainability of selected infrastructure companies in India by providing debt restructuring through private capital mobilized from institutional investors.

DESCRIPTION

Kotak Infrastructure Investment Fund (KIIF) is a closed-end private debt fund domiciled in India. The Fund seeks to invest in operating infrastructure companies primarily by providing senior, secured long-term debt solutions, and may also acquire equity shareholding of the borrower in conjunction with the debt facilities. Target sectors mainly include transportation, renewable power, water, logistics, digital infrastructure, and EV transport infrastructure in India.

ENVIRONMENTAL AND SOCIAL INFORMATION

AIIB’s Environmental and Social Policy (ESP) is applicable to this project. The project has been placed in Category FI, because the financing structure involves the provision of funds through a financial intermediary (the Fund), whereby AIIB delegates to the Fund Manager the decision-making on the use of AIIB’s proceeds for further investing in accordance with the conditions in the Project’s legal documentation to be agreed with the Fund Manager in the form of eligibility criteria and investment guidelines, and applied through an Environmental, Social and Governance Framework (ESGF) which is to be used as the Project’s Environmental and Social Management System (ESMS).

The Fund has adopted a risk-based approach to Environmental and Social (ES) management codified in its ESGF. As per this ESGF, the Fund Manager: (i) qualifies and quantifies the ESG risks and impacts of potential investees against the applicable ESG regulatory requirements in their jurisdiction of operation and good international industry practices, (ii) defines measures to align their performance with the same, (iii) identifies and enhances ESG-value addition opportunities, and (iv) drives and monitors ESG performance during the investment holding period. Coal mining, coal transportation and coal-fired power plants, as well as infrastructure exclusively dedicated to support any of these activities will be excluded from eligibility for financing under the Project.

The Fund will invest in operating Indian infrastructure projects in the transportation, power, pipeline, water, digital infrastructure, and other infrastructure related sectors. These operating projects present a variety of environmental and social risks in the form of ongoing legacy issues and operational challenges. The risk will be mitigated using the Fund Manager’s ESGF policy complemented by monitoring and supervision by AIIB.

For each investment, the Fund Manager shall prepare an Environmental and Social Action Plan (ESAP) determining the required measures to align existing and future operations with the applicable standards.

The Fund will be required to disclose the name, industry and location of portfolio companies supported with AIIB’s proceeds on its website within twelve months from closing an investment. The Fund will be required to inform AIIB of material ESG incidents and grievances at the subproject level and prepare an annual E&S performance report for submission to AIIB.

The Fund has an External Communication Mechanism (ECM) to address third-party views, enquiries or concerns regarding their own ES processes and outcomes, as well as ES impacts and performances of their subprojects. In addition, AIIB will require the Fund to ensure that subproject entities conduct appropriate stakeholder engagement and disclose the required ES documentation, in line with local regulations, and maintain subproject-level Grievance Redress Mechanisms (GRM).

AIIB will conduct prior review of investments presenting significant E&S risk, including all Category A investments and Category B investments determined to potentially induce a) involuntary resettlement, b) risk of adverse impacts on Indigenous Peoples, c) significant risks to or impacts on the environment, community health and safety, biodiversity, cultural resources or d) significant Occupational Health and Safety risks. AIIB will conduct regular monitoring of the Fund’s activities, including visits to selected investments.