India Grid Trust to list on BSE, NSE tomorrow; should you invest?
India Grid Trust, an infrastructure investment trust (InvIT), is set to get listed on exchanges on Tuesday. It is the second InvIT to debut on bourses after IRB InvIT Fund.
An InvITs is a pool of money for investing in infrastructure projects and distribution of the earnings to the unit holders.
Rs 2,250 crore initial public offer (IPO) which concluded on May 19, was subscribed 1.17 times. The set price band for the offer was set at Rs 98—Rs 100 per unit.
The initial share sale offer received bids for 8,18,98,047 shares, as compared to the total issue size of 12,62,78,838 shares, as per NSE’s data.
Before the opening of IPO, India Grid (Indigrid) had raised over Rs 1,012 crore from anchor investors.
Morgan Stanley India, Citigroup Global Markets India and Edelweiss Financial Services were the lead managers to the issue.
The company was established on October 21, 2016 by its Sponsor, Sterlite Power Grid Ventures Limited (SPGVL), and is registered with Securities and Exchange Board of India (Sebi) pursuant to the InvIT Regulations.
Should you invest in it?
IndiGrid has AAA corporate credit rating because of strong lineage and support from sponsor (Sterlite Power Gird). The sponsors have extensive experience in identifying, successfully bidding, designing, financing, constructing, operating and maintaining power transmission projects across India.
It is the country’s first power sector Infrastructure Investment Trust (Invit), which will enjoy the cash flow yields from two power transmission projects (Bhopal Dhule Transmission Company Limited and Jabalpur Transmission Company Limited) won under competitive bidding Tariff Based Competitive Bidding (TBCB).
These projects are being taken over from Sterlite Power Gird and operate on steady annuity income with fixed costs (no variable cost), thus generating very stable cash flows. The trust is mandated to distribute minimum 90% of its cash flow from trust assets under SEBI guidelines.
The proceeds of the issue, which was Rs 2250 crore will be used to repay external debt partially and replace loans from promoter, thus reducing interest burden and improving cash flows.
"With back-ended repayment of outstanding loans (after current repayment) and a recent tariff hike, we estimate the Invit investment to deliver 8-9% equity IRR (at 90-100% dividend pay out). There is an upside potential from: a ) extended life of assets beyond the useful life of 32 years (adds 0.4% to IRR), and b) future acquisition of more transmission assets, which will be offered to the Invit (transfer price is unknown). We find this Invit to be a stable cash flow product for domestic mutual funds/insurance companies, given the exemption from dividend distribution tax, " JM Financial said.
On the other side, inter-state there are risks to the business and the structure of the trust. HDFC Securities in its research report said that the power transmission projects that it carries on are operated under availability-based tariff regime. If availability falls below 95% for a particular line, it is subject to a penalty which reduces the Annual Transmission Charge it receives for the period.