Power Grid Infrastructure Investment Trust (InvIT) IPO

Power Grid Infrastructure Investment Trust (InvIT) IPO Tentative Timetable

About The Company – Power Grid Infrastructure Investment Trust (InvIT) 

Power Grid Infrastructure Investment Trust (InvIT) is set up to own, construct, operate, maintain and invest as an infrastructure investment trust as permissible under the InvIT Regulations. The Power Grid Corporation of India is the Sponsor and the Project Manager of the Trust.

The Sponsor is engaged in project planning, designing, financing, constructing, operating, and maintaining power transmission projects across India and undertakes operations in the Indian telecom infrastructure sector. Through its wholly-owned subsidiaries, Power Grid Corporation 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 31, 2020, 8 of these ISTS SPVs had commenced commercial operations. 

The Investment Manager of the Trust is Power Grid Unchahar Transmission Limited, a wholly-owned subsidiary of Power Grid Corporation of India. Further, IDBI Trusteeship Services is the trustee of the InvIT. The Trust believes that it can take advantage of the growth potential of India’s power transmission industry given its financial position, support from its Sponsor, and the robust regulatory framework for power transmission in India. It is also focused on providing stable and sustainable distributions to its unitholders.

Growth Story of Power Grid Infrastructure Investment Trust (InvIT) 

Power Grid InvIT was registered with SEBI as an InvIT on January 07, 2021. The Trust’s investment objectives are to carry on the activities of and make investments as an infrastructure investment trust as permissible in terms of the InvIT Regulations and the Trust Deed. The investment of the Trust shall be in any manner permissible under and by the InvIT Regulations and applicable law, including in holding companies and/or special purpose vehicles and/or infrastructure projects and/or securities in India as permitted under the InvIT Regulations. The Trust plans to acquire five projects from its sponsor’s TBCB projects. The projects will have a total network of 11 power transmission lines of approximately 3,698.59 km and three substations with 6,630 MVA of aggregate transformation capacity across five states in India.

Financials of Power Grid Infrastructure Investment Trust (InvIT) 

The Trust’s Initial Portfolio Assets comprise:

1. Power Grid Vizag Transmission Limited (PVTL);
2. Power Grid Kala Amb Transmission Limited (PKATL);
3. Power Grid Parli Transmission Limited (PPTL);
4. Power Grid Warora Transmission Limited (PWTL); and
5. Power Grid Jabalpur Transmission Limited (PJTL)

They are individually referred to as “SPV” and together referred to as “SPV Group” and are wholly-owned subsidiaries of Power Grid Corporation of India Limited (Sponsor). Here is a quick look at the financial performance of the SPV Group over the last three years:

All amounts in Rs Crore

A glance at the financial performance of the SPV Group over the last three years highlights the fact that there has been exponential revenue growth. During this period, the total income of the company showed growth at a CAGR of 96.47%. The company’s assets grew from 2018 to 2019 at a CAGR of 7.62% and then dropped from 2019 to 2020 at a CAGR of -2.56%. Further, the SPV Group has experienced steady growth in profits at a CAGR of 82.19%.

SWOT Analysis

India is the third-largest producer of electricity in the world and has a dynamic and diversified power sector. The power sector has a presence of varied power generation sources, including conventional sources as well as renewable energy sources. They synchronously operate the national grid comprising interregional, regional and state grids. The sector also has a distribution sector providing electricity to end consumers. The development of adequate electricity infrastructure is essential for the sustained growth of the economy and energy security.

The National Infrastructure Pipeline: Volume II, Report of the Task Force, Department of Economic Affairs, Ministry of Finance, Government of India (NIP) has set a ‘Vision 2025’ for the power sector, salient features of which include:

• 24 x 7 clean and affordable power for all;
• Total capacity: 583 GW (share: thermal – 50%; renewable – 39%);
• Reduction in the share of thermal capacity and increase in the share of renewable energy (RE) capacity;
• RE share in consumption to increase to approximately 20%;
• Growth in per capita consumption to 1,616 units;
• Promotion of grid storage and offshore wind energy;
• Reforms in the distribution in the areas of open access, cost-reflective tariffs, smart metering, use of digital platforms; and
• EV charging infrastructure.

The three segments of the power supply delivery chain are generation, transmission, and distribution. Being a critical link in the power sector value chain, the transmission sector needed more attention to help it cater to the growing power demand and the increasing generation capacity. Investments in budgetary allocations, internal accruals and public sector undertakings borrowings were unable to fund this growing need. Keeping this in mind, the Electricity Act permitted competition in the power sector, including in the power transmission sector.

Strengths of Power Grid Infrastructure Investment Trust (InvIT) 

• The experience and expertise of Power Grid Corporation of India Limited, the Sponsor, provides the InvIT with a significant competitive advantage within the Indian power transmission industry.
• Power Grid is engaged in project planning, designing, financing, constructing, operating, and maintaining power transmission projects across India
• The Trust derives its revenues for electricity transmission from contracted transmission charges under long-term transmission service agreements (TSAs), which characterizes its power transmission business with a low level of risk. The transmission charges for each Initial Portfolio Asset are contracted for the period of the TSA, which is 35 years from its respective Scheduled COD.
• The InvIT has a credit rating of Provisional [ICRA] AAA (Stable), CARE AAA (Is); Stable and Provisional CCR AAA/Stable by ICRA Limited, CARE Ratings Limited and CRISIL Ratings Limited, respectively.
• The Government of India has been supportive in securing the settlement of outstanding dues by the designated inter-state transmission system customers and in addressing the right issues and expediting forest clearances that are required during the implementation of projects.
• The Trust believes that it is in an advantageous position to capitalize on opportunities that may arise for increasing power transmission capacity by utilizing its existing right of way since developing alternate and new lines may be challenging for another entity.
• The InvIT will be managed by qualified personnel of the Investment Manager who has management and operational experience in the power transmission sector and established track records to negotiate, structure, and financial investments of power transmission assets and manage those assets.
• Accordingly, it expects to benefit from the skills and experience of the board of directors and the management teams of its Investment Manager while making investment decisions and financially managing the Initial Portfolio Assets.

Weaknesses of Power Grid Infrastructure Investment Trust (InvIT) 

• Being a new InvIT, there is no operating history. This can make it difficult for investors to gauge the prospects of the Trust.
• The transmission charges, operation & maintenance costs for some projects are high.
• Since the InvIT receives most of its substantial revenues from Designated Inter-State Transmission System Customers (DICs), any delay can impact the Trust’s revenue and cash flows.

Peer Comparison

Since there is no operating history of the InvIT, comparing its performance with its peers is impossible.

Risk Factors

• Power Grid InvIT is a newly settled trust and does not have an established operating history. This makes it difficult to assess its future growth prospects accurately.
• The Trust may be unable to operate and maintain its power transmission projects to achieve the prescribed availability, which may adversely affect its cash flows and results of operations. This can be due to a variety of reasons like:
  • failure to obtain, maintain or renew permits and licenses or meet any conditions specified therein;
  • operator error, improper installation or mishandling of equipment;
  • breakdown or failure of power transmission systems;
  • flaws in equipment design or construction of power lines or substations;
  • work stoppages or labour disturbances or disputes;
  • performance of equipment below expected levels of output or efficiency;
  • environmental issues affecting the operations of transmission systems;
  • planned or unplanned power outages;
  • theft of equipment and line material;
  • claims on completed projects and litigations, proceedings, judgments or awards arising therefrom; and
  • force majeure and catastrophic events, including fires, explosions, landslides, storms, floods, social unrest, earthquakes and terrorist acts, pandemic, etc. to the extent such events are not excluded from the calculation of availability under the TSA’s
• Substantially all the Trust’s revenues are derived from Designated Inter-State Transmission System Customers (“DICs”). A delay in payments of billed transmission charges by the DICs to the CTU may adversely affect its cash flows and results of operations.
• As the terms and conditions, including the transmission charges under the TSAs, are generally fixed, the Trust may not be able to offset the increase in costs, including operation and maintenance costs, solely from transmission charges payable to it under the TSA’s. This may adversely impact its business, prospects, financial condition, results of operations, and cash flows.
• Power grid outages at the state, regional or national level disrupt electricity transmission and could result in performance being below expected levels.
• In addition, power transmission projects rely on sophisticated machinery built by third parties, which may malfunction. Injuries to people or property may also occur in the ordinary course of carrying on business, subjecting the Trust to significant disruptions in business and legal and regulatory actions.
• The operation of power transmission projects also involves many operational risks, some of which are outside the Trust’s control, including explosions, fires, damages due to earthquakes and other natural disasters, change in climatic conditions, the breakdown or failure of transmission equipment, or other equipment or processes, operating below expected levels, labour disputes, civil unrest, terrorism and war. 
• The financial projections are subject to significant business, economic, competitive, industry, regulatory, market and financial uncertainties and contingencies that could cause actual results to differ materially from those projected.
• Any changes to current tariff policies or regulations could have a material adverse effect on its business, prospects, financial condition, results of operations, and cash flows.
• Power Grid InvIT could be adversely affected if it cannot maintain or renew its existing regulatory approvals or obtain any new approvals due to changes to the regulatory environment and the laws, rules and directives of the government.
• The Trust may not be able to successfully fund future acquisitions of new projects due to the unavailability of debt or equity financing on acceptable terms promptly, impeding the implementation of its acquisition strategy and may adversely impact its business.
• Opposition from local communities and other parties, such as through litigation or by other means, may adversely affect its financial condition, results of operations, and cash flows.

Objects of the Offer

Power Grid Infrastructure Investment Trust (InvIT) proposes to utilize the net proceeds from the fresh issue for:

1. 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
2. General corporate purposes.

How can you apply for the Power Grid Infrastructure Investment Trust (InvIT) IPO?

This IPO is not available on Groww as UPI applications are not allowed for this IPO. However, you can apply for this IPO through the Applications Supported by Blocked Amount (ASBA) facility available with almost all banks.

You can generally find the ASBA facility in the e-services or net banking services option. ASBA facility allows you to invest in FPOs and IPOs.

Here are the steps to apply for an IPO via the HDFC net banking ASBA facility. The steps are more or less the same across banking platforms.

Step 1: Log in to your net banking account using your customer ID and password.

Step 2: Go to the request tab on the left side of the screen.

Step 3: Scroll down and find the IPO/Rights Issue option. 

Step 4: On the next screen, you will see a list of IPOs and rights issues live. Click on ‘Apply’ for the IPO you want to apply for.

Step 5: The next screen will request some information from you. The number of shares you want to bid for, your bid price, date of birth. 

Some details like your name, PAN number, bank account number and name, branch, nationality and residential status will be pre-filled. These details cannot be altered here if need be.

The information asked for under Depository details can be found in your Consolidated Account Statement (CAS) as well.

Step 6: Once you proceed, you will be asked to confirm the amount to be blocked from your account, agree to necessary terms and conditions and submit the IPO application

Things to keep in mind before investing in the Power Grid InvIT IPO

Here are some things that you need to keep in mind before investing in the Power Grid InvIT IPO:

1. Power Grid InvIT is a new InvIT. Hence, there is no operating history to refer to for assessing its performance.
2. The transmission charges, operation & maintenance costs for some projects are high.
3. The experience and expertise of Power Grid Corporation of India Limited, the Sponsor, provides the InvIT with a significant competitive advantage within the Indian power transmission industry.
4. The InvIT has a credit rating of Provisional [ICRA] AAA (Stable), CARE AAA (Is); Stable and Provisional CCR AAA/Stable by ICRA Limited, CARE Ratings Limited, and CRISIL Ratings Limited, respectively.

Power Grid IPO – FAQs

Q1. What is the Power Grid Infrastructure Investment Trust (InvIT) IPO?

The Power Grid Infrastructure Investment Trust (InvIT) IPO is a Main Board InvIT IPO for the issue of units totaling up to Rs.7,734.99 crores. The registrar for the IPO is KFintech Private Limited, and the shares are proposed to be listed on the BSE and NSE.

Q2. What are the open and close dates of the Power Grid Infrastructure Investment Trust (InvIT) IPO?

The Power Grid Infrastructure Investment Trust (InvIT) IPO opens on April 29, 2021, and closes on May 03, 2021.

Q3. What are the lot size and minimum order quantity of the Power Grid Infrastructure Investment Trust (InvIT) IPO?

The lot size for the Power Grid InvIT IPO is 1100 shares, and the minimum order quantity is 1100 shares.

Q4. What are the allotment dates of the Power Grid Infrastructure Investment Trust (InvIT) IPO?

For the Power Grid InvIT IPO, the allotment will be finalized by May 10, 2021. Further, the shares are expected to be credited to investors’ accounts by May 11, 2021.