PowerGrid InvIT will sell shares at Rs 99-100 apiece in the country’s largest initial public offering by an infrastructure investment trust that commences on April 29.
The InvIT IPO, the first by a state-run firm, plans to raise Rs 7,735 crore, comprising a fresh issue of up to Rs 4,993.5 crore and existing investors offering units worth up to Rs 2,741.5 crore.
The initial share sale is being made through the book-building process, up to three-fourths of which will be allotted to institutional investors. Out of this, 60% is reserved for anchor investors. Not less than 25% of the offer shall be allotted on a proportionate basis to non-institutional investors, subject to valid Bids being received at or above the offer price.
ICICI Securities, Axis Capital, Edelweiss Financial Services and HSBC Securities and Capital Markets are the book running lead managers to the offer.
Details
- Issue opens on: April 29.
- Issue closes on: May 3.
- Price band: Rs 99-100 per share.
- Bid Lot: 1,100 units per lot
- Listing on: BSE and NSE.
Objective
The proceeds of the fresh issue will be loaned to initial portfolio assets for repayment or pre-payment of debt, including any accrued interest.
Business
PowerGrid InvIT is set up to own, construct, operate, maintain and invest in power transmission assets in India. Its sponsor, PowerGrid Corp. of India, is a central public sector enterprise under the Ministry of Power, and is listed on the BSE and NSE.
The sponsor plans, designs, finances, constructs, operates and maintains power transmission projects across India. It also operates telecom infrastructure.
PowerGrid, through its subsidiaries, is setting up, implementing and operating transmission projects across India where the right to provide transmission services is procured through tariff-based competitive bidding.
The InvIT proposes to acquire five such projects initially with a total network of 11 power transmission lines of approximately 3,698.5 circuit kilometres and three substations having 6,630 MVA of aggregate transformation capacity, as of Sept. 30, 2020, across five Indian states.
A PowerGrid subsidiary will manage the InvIT, initial portfolio assets and take investment decisions relating to the assets.
The InvIT intends to distribute at least 90% of the net cash available for distribution to unitholders once every quarter in every financial year. The first declaration of distribution by the trust shall be made within six months of the listing.
Strengths
Strong Lineage
PowerGrid’s experience provides the InvIT with a competitive advantage within the Indian power transmission industry. The sponsor is the nation’s largest power transmission company by the length of transmission lines.
Strong Financial Position
PowerGrid InvIT earns revenue from electricity transmission charges. These comprise fixed non-escalable charges and, in the case of PowerGrid Vizag Transmission, partly also “variable escalable” transmission charges.
Since transmission charges are fixed for a period of 35 years, there is minimal price risk, providing stability, consistent cash flows and long-term visibility.
Low Competition Risk
The InvIT can capitalise on opportunities to increase power transmission capacity by utilising its existing right of way since developing new lines may be challenging for other entities.
Risks
- It’s a newly settled trust with no established operating history, making it difficult to accurately assess future growth prospects.
- Revenue derived from payments by designated inter-state transmission system customers and delay in payments of such billed transmission charges can affect cash flows and operations.
- Charges under transmission service agreements are fixed and may not be able to offset the increase in costs, including those leading to operation and maintenance. This may impact its business and financials.
- The company intends to distribute at least 90% of the net cash available for distribution to its unitholders once at least every quarter in every financial year. However, such income can fluctuate owing to various risk factors indicated in the prospectus.
- Success depends upon the investment and project managers, the management and personnel they employ, and their ability to attract and retain such persons.
Financials
For the nine months through December 2020, the InvIT realised maximum revenue from PowerGrid Warora Transmission, followed by PowerGrid Parli Transmission.
