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May 17, 2017 07:02 PM IST | Source: Moneycontrol.com

IndiGrid InvIT opens: Here’s what brokerages are saying about it

The fund plans to raise Rs 2,250 crore through its initial share-sale offer, which will close on May 19. It has a price band of Rs 98-100 per unit.

Following the first infrastructure investment trust (InvIT) by IRB Infra, India Grid Trust hit the primary market to raise funds. Its issue was open for subscription on Wednesday.

The fund plans to raise Rs 2,250 crore through its initial share-sale offer, which will close on May 19. It has a price band of Rs 98-100 per unit.

India Grid Trust raised over Rs 1,012 crore from anchor investors ahead of its initial share-sale offer opening. The InvIT, sponsored by Sterlite Power Grid Ventures allotted 10.12 crore units on an average price of Rs 100 to 19 anchor investors for a sum of Rs 1,012.44 crore, it said in a statement.

Among the anchor investors are Deutsche Global Infrastructure Fund, Credit Suisse (Singapore), Reliance Nippon Life Insurance Company, Copthall Mauritius Investment and Edelweiss Tokio Life Insurance Company.

Among major brokerages, Angel Broking has recommended subscribing to the issue. The rest have largely refrained from rating it.

Angel Broking

The brokerage believes that investors can choose to subscribe the issue considering benefits of cash flows, and financial position, among others. This, coupled with attractive valuations, makes it worth subscribing, the brokerage said.

It highlighted that payment securities in the form of revolving letter of credit, a surcharge of 1.25 percent for late payments and lack of alternate power infrastructure deters beneficiaries from defaulting. This mechanism, it said, diversifies counter party risks and ensures stable cash flow independent of asset utilization

Furthermore, it has a strong financial position given its Corporate Credit Rating AAA/Stable by CRISIL, ‘IND AAA’/Stable by India Ratings and ‘IrAAA’ with stable outlook by ICRA. Following utilization of the Issue Proceeds, debt to equity will be below 49 percent. “IndiGrid expects that low indebtedness will provide the ability to finance the growth of business without substantial dilution to Unit holders in the near future and ensure stable distributions,” it said in its report.

Moreover, it enjoys the benefit of ROFO Deed (Right of First Offer) with sponsor’s eight inter-state power transmission projects, with transmission network of 21 power transmission lines of 4,831 kms and five substations, and transformation capacity of 6,630 MVA.

ICICI Securities

Investors will be offered returns predominantly in the form of interest and dividend.

The brokerage highlighted that the issue proceeds will be used towards reduction of debt of both the projects.

Transmission assets, in general, have reasonably higher certainty of cash flow with assured tariffs, it said. “Cash flow, however, is projected to decline over the course of the project agreement life. Therefore, it may result in a decline in yield to InvIT unitholders,” it said in its report.

It also listed out key risks to the fund:

- The assumptions in projections of revenue from operations and cash flow from operating activities are inherently uncertain and subject to various significant risks and uncertainties

- The Trust may be unable to make distributions to unitholders comparable to unitholders’ estimated or anticipated distributions or level of distributions may fall

- Net losses have been sustained in past and may be experienced in future

- Any changes to current tariff policies or modifications of tariffs standards by regulatory authorities could have a material adverse effect on business, prospects, financial condition, results of operations and cash flows

- Initial Portfolio Assets, Sponsor and its Associates and Trustee are involved in certain legal proceedings

HDFC Securities

Focused business model, pursue additional transmission and non-transmission revenues, value accretive growth through acquisitions is a part of the business strategy for the firm, it said. It also highlighted a few risks:

IndiGrid being a new entity might get judged:

IndiGrid was established on October 21, 2016. Accordingly, IndiGrid, as an infrastructure investment trust, does not have an operating history, due to which the past performance might be judged. This will make it difficult for investors to assess their future performance.

It may be unable to operate and maintain their power transmission projects to achieve the prescribed availability:

The power transmission projects that it carries on are operated under availability-based tariff regime. If availability falls below 95% for a particular line, itis subject to a penalty which reduces the Annual Transmission Charge itr eceives for the period.

Any changes in the tariff structure or policies or modifications could bring a material effect in the business:

Any negative change in the operating statutory parameters of the NLDC, the RLDCs or the SLDCs, as applicable, may negatively impact the corresponding availability of the Initial Portfolio Assets’ assets and in turn materially and adversely impact the business, prospects, financial condition, and results of operations and cash flows of the Initial Portfolio Assets.

Operational risk

Risk related to non-achievement of projected financial performance:

Business, economic, financial, regulatory and competitive risks and uncertainties
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