Electricity transmission company Power Grid Corporation of India is preparing to launch the first ever InvIT (infrastructure investment trust) IPO by a state-owned firm, on April 29, marking a landmark deal for the Indian capital markets, people with knowledge of the matter told Moneycontrol.
The move comes at a time when the government has set a disinvestment target of Rs 1.75 lakh crore for FY22 and is betting big on initial public offerings (IPOs) by Life Insurance Corporation and Air India IPOs, after coming up short in the previous financial year.
An InvIT 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.
“ This is a big transaction and the size of the IPO is likely to be around Rs 7,700 crore, with a primary component of around Rs 4500 crores and the balance making up the secondary component. The price band is likely to be announced on April 29,” said one of the persons cited above.
A second person said strong interest has been seen from stable yield seekers and a clutch of global pension funds, global long only funds, domestic infra funds and leading mutual funds and insurance players are keen on this offering. "The power transmission sector has been insulated from the impact of Covid-19 and the government is looking to unlock value by monetising 5 assets.”
“This eagerly awaited invIT IPO will help to reduce the debt burden of the firm and will also provide capital for fresh network expansion plans,” said a third person, confirming the launch plans. A fourth individual also confirmed the same.
All the four persons spoke to Moneycontrol on the condition of anonymity. Moneycontrol could not immediately contact Power Grid and has sent an email query. The response is awaited and the story will be updated as soon as we hear from the firm.
On January 27, 2021, Moneycontrol was the first to report the filing of the DRHP ( draft red herring prospectus ) with market regulator Sebi by Power Grid.
(https://www.moneycontrol.com/news/business/ipo/power-grid-files-for-1-1-billion-invit-ipo-first-ever-by-a-psu-6402011.html)
ICICI Securities, Axis Capital, Edelweiss Financial Services & HSBC Securities and Capital Markets are the investment banks working on the InvIT IPO according to the DRHP filed with Sebi. Law firms Cyril Amarchand Mangaldas and J Sagar Associates are the legal advisors.
National Highway Authority of India (NHAI) is another state-owned firm that is exploring an InvIT IPO to raise around Rs 5,000 crore. The private sector has seen two InvITs 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.
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.
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