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Power Grid files for $1.1 billion InvIT IPO, first ever by a PSU

This is the first attempt at an initial public offering of an InvIT by a state owned firm. The private sector has seen two InvIT’s so far, namely IndiGrid InvIT & IRB Infra InvIT

April 29, 2021 / 08:15 PM IST

Government-owned electricity transmission company Power Grid Corporation of India has filed a DRHP (draft red herring prospectus) with market regulator SEBI to monetise assets and raise around Rs 8,000 crore or more than a billion dollars via the InvIT ( infrastructure investment trust) route, people familiar with the matter told Moneycontrol.

This is a landmark deal as, if plans fructify, this would be the first initial public offering (IPO) of an InvIT by a state-owned firm and comes at a time when there is an acute shortfall in the government’s 2.1 lakh crore disinvestment target.

“This is a public InvIT and will help Power Grid to unlock value and secure funds for fresh investment in transmission network expansion. It will also help to reduce debt from the listed company’s books and transfer it to the InvIT. The InvIT will then raise fresh capital in the IPO and trim the debt," one of the individuals cited above told Moneycontrol.

“A clutch of pension funds and sovereign funds has expressed strong interest in the deal. The money from the InvIT will go to the listed company Power Grid and the firm can then decide what to do with the IPO proceeds and give dividend," a second individual told Moneycontrol.

“ICICI Securities, Axis Capital, Edelweiss and HSBC Securities are the investment bankers working on this proposed InvIT, which is likely to be launched in March 2021,” a third individual told Moneycontrol.

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All the three individuals spoke on the condition of anonymity. Moneycontrol could not immediately connect with Power Grid, Axis Capital, HSBC Securities and ICICI Securities for a comment.

On September 8, 2020, the Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, had approved the monetisation of assets of Power Grid, which falls under the Ministry of Power, through the Infrastructure Investment Trust (InvIT) model.

“This approval would help Power Grid to monetise in the first lot, assets with gross block value of more than Rs 7,000 crore. These assets, which are mainly High Voltage Transmission lines and substations, are held by Power Grid in form of Special Purpose Vehicles (SPVs). The proceeds from the asset monetization would be deployed by Power Grid in their new and under-construction projects," the government had shared in an official statement.

Budget 2019-20 had emphasized investment-led growth and indicated that new and innovative financial instruments, including lnvITs, would be launched as part of the brown field asset monetization strategy for augmenting infrastructure investment.

Market view on Power Grid

According to a report dated December 21, 2020, by brokerage Sharekhan, “Power Grid’s regulated RoE model is resilient in current uncertain times and provides strong earnings visibility (19 percent PAT CAGR over FY21E-FY23E) and RoE of 19 percent. Unlike thermal power companies, Power Grid does not have an overhang of ESG. Potential monetisation of 5 TBCB assets worth Rs 7,164 crore and normalisation of outstanding dues from discoms (Rs 6,477 crore as of September 2020) are key near-term catalysts.”

ESG refers to environmental, social and governance factors.

“Likely proceeds from InvIT provide room for higher dividends. India’s aim to expand renewable energy capacity to ~445 GW (vs 87GW in FY20) would entail a capex of Rs 2.86 lakh crore in a decade for transmission lines, providing growth opportunity of 8-9 percent per year for Power Grid,” the report added.

The firm had m-cap of nearly Rs 1 lakh crore at the end of the day’s trade on January 25, 2021, and it counts GIC and LIC as its investors.

India and InvITs: The story so far

An InvIT or Infrastructure Investment Trust is a collective investment scheme similar to a mutual fund, which enables direct investment of money from individual and institutional investors in infrastructure projects to earn a small portion of the income as return.

The instrument is designed as a tiered structure with a sponsor setting up the InvIT which in turn invests into the eligible infrastructure projects either directly or via special purpose vehicles (SPVs). The NHAI ( National Highway Authority of India) is also looking to monetise assets and raise funds via this route.

The private sector has seen two InvIT’s so far, namely IndiGrid InvIT, backed by KKR and Sterlite Power Grid Ventures and IRB Infra InvIT, backed by the infrastructure firm and affiliates of GIC.
Ashwin Mohan
first published: Jan 27, 2021 02:28 pm
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