PowerGrid Infrastructure Investment Trust is set to open its initial public offering for subscription on April 29, the first InvIT to be launched by the government company.
The units are proposed to be listed on the BSE and National Stock Exchange of India. The lead managers to the offer are ICICI Securities, Axis Capital, Edelweiss Financial Services, and HSBC Securities and Capital Markets (India).
An infrastructure investment trust (InvIT) works like a mutual fund. It is an investment vehicle that allows individuals and institutions to invest in infrastructure assets such as roads, power transmission lines, etc to earn a small portion of the income as return over a period of time.
Here are 10 key things to know about PowerGrid InvIT IPO before subscribing to the offer:
1) IPO dates
The issue will open for bidding on April 29 and the last day for the offer is May 3, 2021. The bidding for the anchor book will open for a day on April 28.
2) Public offer
The offer comprises a fresh issue of Rs 4,993.48 crore and an offer for sale of Rs 2,741.51 crore by the selling unitholder.
About 75 percent of the offer is reserved for institutional investors, of which 60 percent portion is reserved for anchor investors. The balance 25 portion of the offer is available for allocation on a proportionate basis to non-institutional investors.
3) Price Band
The price band for the offer has been fixed at Rs 99-100 a unit.
4) Bid lot size
Investors, who want to subscribe (barring anchor investors), can bid for a minimum of 1,100 units and in multiples of 1,100 units thereafter.
The company is planning to raise Rs 7,735 crore through its public issue. This offer will constitute at least 10 percent of the outstanding units on a post-offer basis.
6) Objects of the offer
The net proceeds from the fresh issue offer will be utilised for providing loans to the Initial Portfolio Assets for repayment or pre-payment of debt, including any accrued interest, availed by the Initial Portfolio Assets; and for general corporate purposes.
7) Sponsor and trustee
IDBI Trusteeship Services is the Trustee, while PowerGrid Unchahar Transmission is the investment manager.
State-owned Maharatna company Power Grid Corporation of India, the sponsor for InvIT, is acting in the capacity of project manager. Power Grid is engaged in project planning, designing, financing, constructing, operating, and maintaining power transmission projects across India and also undertakes operations in the Indian telecom infrastructure sector.
The sponsor is the largest power transmission company in India in terms of the length of transmission lines measured in circuit kilometres (ckm) .
As of December 2020, it owned the tariff-based competitive bidding (TBCB) projects and through its wholly-owned subsidiaries it is setting up, implementing and operating transmission projects at various locations in India where the right to provide transmission services is procured under the TBCB mechanism.
As of December, eight of these ISTS SPVs had commenced commercial operations, comprising 39 transmission lines (6,398 ckm), with a total power transformation capacity of 9,630 MVA.
As of December 2020, the sponsor operated, on a standalone basis, 1,238 transmission lines aggregating to 1,61,742 ckm, 248 substations (including HVDC substations and GIS substations) with 4,11,000 MVA of transformation capacity.
Further, as of December 2020, the Sponsor's total transmission assets, including its wholly owned subsidiaries, consisted of 1,277 transmission lines aggregating to 1,68,140 ckm, 252 substations with an aggregate transformation capacity of 4,20,630 MVA. In addition, the company benefits from a strong balance sheet by leveraging it to support its growth.
The investment manager PowerGrid Unchahar Transmission, a wholly-owned subsidiary of the sponsor, is responsible for managing PowerGrid InvIT and the Initial Portfolio Assets as well as undertaking investment decisions relating to assets.
PowerGrid Unchahar Transmission is engaged in the power transmission business since fiscal 2014 and has infrastructure sub-sector experience owing to its involvement in the construction and operation of a transmission system.
8) Company profile
PowerGrid InvIT has been set up to own, construct, operate, maintain and invest as an infrastructure investment trust, in power transmission assets in India.
Of the sponsor tariff-based competitive bidding (TBCB) projects, PowerGrid InvIT proposed to acquire five projects initially with a total network of 11 power transmission lines of approximately 3,698.59 ckm and three substations having 6,630 MVA of aggregate transformation capacity, as of December 2020, across five states in India, which is an Initial Portfolio Assets of the InvIT.
The trust will own 74 percent of shareholding in each of the 5 TBCB projects, and the remaining 26 percent stake will be acquired through debt (from Power Grid) after the lock-in period that ended by 2024.
Power Grid Corporation is required to hold a 15 percent stake in the InvIT and the rest is by public unitholders.
The Initial Portfolio Assets were awarded to Power Grid Corporation under the TBCB mechanism on a build-own-operate-maintain (BOOM) basis. The Initial Portfolio Assets earn revenues, ie availability-based transmission charges, pursuant to the transmission service agreements (TSAs), from the DICs under such TSAs irrespective of the quantum of power transmitted through the transmission line.
Proposed post-listing structure
The Initial Portfolio Assets comprise grid strengthening links, generation linked assets, and assets linked with inter-regional power flow covering both demand and supply centric states of Himachal Pradesh, Maharashtra, Andhra Pradesh, Madhya Pradesh and Telangana.
In addition, maintaining the availability of the Initial Portfolio Assets in excess of 98 percent gives the company the right to claim incentives under the transmission service agreements. The transmission charges for power transmission projects acquired through the TBCB mechanism, including the Initial Portfolio Assets, is contracted for the period of the relevant TSAs, which is 35 years from the scheduled COD (commercial operations date) of the relevant power transmission project, and is subject to renewal in accordance with the relevant TSA and the CERC.
The company intends to distribute at least 90 percent of the net cash available for distribution to unitholders once at least every quarter in every financial year. However, the first declaration of distribution by the Trust shall be made within six months from the listing and trading of units pursuant to the offer.
9) Competitive strengths and business strategies
a) The company has a strong lineage and support from the sponsor and the project manager.
b) It has consistent and stable cash flows from assets with long term-visibility and low counter-party risks.
c) The company is in a strong financial position.
d) The company has government support and an established regulatory framework.
e) It has strategic and critical nature of power transmission infrastructure with low risk of emergence of alternate infrastructure.
f) The company has a skilled and experienced investment manager with a strong corporate governance philosophy.
a) The company intends to have focused business model with productive and operational efficiency to enhance returns.
b) The company intends to capitalise on value-accretive growth through acquisitions and non-transmission revenues.
c) The investment manager aims to maintain an optimal and varied portfolio of transmission assets, as well as an efficient capital structure and balanced consolidated leverage, to provide for consistent and predictable cash flows.
The company's revenue from operations for the nine months ended December 2020 and the FY20, FY19 and FY18, was Rs 992.3 crore, Rs 1,324.3 crore, Rs 977.16 crore and Rs 343.57 crore, respectively. Profit in the same periods was Rs 337.14 crore, Rs 378.8 crore, Rs 248.06 crore and Rs 114.13 crore, respectively.
Following the utilisation of the offer proceeds, its consolidated borrowings and deferred payments net of cash and cash equivalents will be below 49 percent of the total value of assets, as prescribed by the InvIT Regulations.