India Grid IPO
India Grid Trust (IndiGrid)
is an infrastructure investment trust established to own inter-state power transmission assets in India. Sterlite Power Grid Ventures and Sterlite Investment Managers are sponsor and investment manager, respectively, of IndiGrid. Through IndiGrid IPO, Strelite Power Grid Ventures is planning to hive off Sterlite Grid1 (SGL1) which holds two operating transmission assets – Bhopal Dhule Transmission Company (BDTCL) and Jabalpur Transmission Company (JTCL), which shall be the initial portfolio assets of India GridsTrust Invit.

Anchor Investors for India Grid IPO:

India Grid’s anchor book saw participation from a total of 19  foreign institutional and domestic  investors and garnered Rs. 1012 Crores from the Anchor Investors.  Foreign institutional Investors included Deutsche Global Infrastructure Fund, Future Fund Board of Guardians, Driehaus Emerging Markets Small Cap Growth Fund and Jupiter South Asia Investment Co. Ltd. Domestic investors  included BNP Paribas Arbitrage MF, DSP Blackrock MF, Edelweiss Tokio Life Insurance Co. Ltd, Reliance Nippon Life Insurance Co. Ltd and Reliance General Insurance Co. Ltd.  Click here for Complete Anchor List

India Grid IPO Issue Snapshot:

Offer Period

Opens:  Wed, May 17, 2017, Closes :  Friday, May 19, 2017

Sponsor

Sterlite Power Grid Ventures Limited

Trustee

Axis Trustee Services Limited

Investment Manager

Sterlite Investment Managers Limited

Lead Managers

Morgan Stanley India Company Private Limited, Citigroup Global Markets India Private Limited & Edelweiss Financial Services Limited

Price Band

Rs.98/- to Rs.100/- per unit

Bid Lot

10,206 Units and in multiples of 5,103 Units thereafter.

Issue Size in Rs.

Rs. 2,250 crs. 
75% for Institutional Investors i.e. Rs.1,687.5 crs
25% for Non Institutional Investors Rs.562.5 cr.

Trading Lot

Rs. 5 Lakhs

Mode of Payment

ASBA Mandatory (No Cheques will be accepted)

Registrar

Karvy Computershare Private Limited

Listing

NSE and BSE

About InvIT

SEBI introduced Infrastructure Investment Trust (InvIT) Regulations for infrastructure
projects keeping in mind the huge infrastructure needs of our country. Infrastructure Investment Trusts(InvIT) are akin to mutual funds which are regulated by SEBI to enable investments into the infra sector by pooling together money from several individual investors for direct investment in infrastructure . In contrast to earlier methods like Infrastructure Bonds, these instruments provide a means for direct investment by individual investors in infrastructure mainly in revenue generating or completed projects. In the process they aim to return a portion of the income, after meeting expenses to unit holders of InvITs. This framework enables infrastructure developers to monetize completed assets by pooling multiple projects under a single entity i.e. Trust structure. InvITs are expected to  enable infrastructure developers to deleverage their balance sheets and refinance remaining debt at lower cost For more Details Infrastructure Investment Trusts (invIT): A Primer

About India Grid (IndiGrid) InvIT Fund
  • Sterlite Power Grid Ventures Limited (“SPGVL”) is the Sponsor of the India Grid Trust (“IndiGrid”)  which was set up in  October 21, 2016  as an irrevocable trust under the provisions of the Indian Trusts Act, 1882. I. IndiGrid was registered with SEBI on November 28, 2016 as an infrastructure investment trust under  InvIT Regulations 
  • Earlier, Sterlite Technologies Limited  had spun off its power business into a separate unlisted entity named ‘Sterlite Power Transmission Limited (SPTL). As part of the ongoing business restructuring in Sterlite group, Sterlite Power Grid Ventures Limited (SPGVL), the EPC arm of the group, was made a  subsidiary of SPTL. SPGVL is also the holding company for nine SPVs engaged in setting up power transmission projects.
  • The Sponsor is one of the leading independent power transmission companies operating in the private sector and owns 11 inter-state power transmission projects with a total network of 30 power transmission lines. Some of these projects have been fully commissioned, while others are at different stages of development.
  • Of the 11 inter-state power transmission projects owned by the Sponsor, India Grid (IndiGrid) will initially acquire 2 projects with a total network of 8 power transmission lines of approximately 1,936 kms and 2 substations having 6,000 MVA of transformation capacity across 4 states (the “Initial Portfolio Assets”).
  • IndiGrid shall remain in force perpetually until it is dissolved or terminated in accordance with the Trust Deed.

The following structure illustrates the relationship between IndiGrid, the Trustee, the Sponsor, the Investment Manager, the Project Manager and the Unitholders :

IndGrid ipo


Objectives of  India Grid (IndiGrid) InvIT Fund:

Prior to the Allotment, IndiGrid, acting through its Trustee, proposes to acquire 100% of the issued and paid-up equity share capital of SGL1 (Sterlite Grid 1 Ltd), which, in turn, holds 100% of the issued, subscribed and paid-up equity sharecapital of BDTCL (Bhopal Dhule Transmission Company Limited) and JTCL (Jabalpur Transmission Company Limited), . The Sponsor presently holds 100% of the equity shareholding of SGL1 and has subscribed to nonconvertible debentures of SGL1. The Sponsor proposes to transfer its equity shareholding in SGL1 and all or a portion of he non-convertible debentures of SGL1 to IndiGrid (“Securities Transfer”) pursuant to the Securities Purchase Agreement, in exchange for Units, prior to Allotment of Units in this Issue 

Upon the Listing of the Units, IndiGrid shall utilize the Issue Proceeds to provide loans to BDTCL and JTCL (“IndiGrid Loans”), through two separate facility agreements, both dated May 5, 2017, entered intobetween the Trustee (on behalf of IndiGrid), the Investment Manager, and each of BDTCL and JTCL,respectively. Among the key terms of the agreement is that the facility will carry interest @13% p.a. payable every six months. The IndiGrid Loans will be utilized to (i) repay or pre-pay debt availed from banks and financial institutions (including any pre-payment penalty), SGL1 and SGL2; and (ii) repayment of any other long term and short termliabilities, incurred by BDTCL and JTCL.

Financials:
Restated Consolidated Financials  (Figures in Rs. Crore)
 FY15FY16Fy17
Revenue69356473
EDIDTA53.7315.5428.1
Profit After Tax-47.3-78.3-301.1

 

Tax Implications

  • Major income is likely to be in form of dividends and Dividend Income distributed by the Trust is exempt in the hands of the unit holders.
  • Units held for more than 3 years are exempt as Long Term Gains
  • Units sold before three years shall attract Short Term Gains @15% proved STT has been paid.
  • Interest Income paid, if any shall become taxable in the hands of the unit holders of the Trust.

Pros
  • There is good opportunity in power transmission in the country due to push provided by Government and for the very first time that opportunity is available for private sector participation. 
  • Government’s big plans for renewable energy and the power for all (PFA) scheme, there is be huge amount of investments required in transmission space

  • The 2 projects that the trust will put on are both for transmission lines one is Bhopal Dhule transmission line and other one is Jabalpur transmission line and both are extra high voltage transmission lines spread across 4 states in the country and the lines will start operating within 1-2 years. These lines have a residual life of as much as 33 years and they will have predictable cash flow for next 33 years.
  • InvITs have to ensure that they distribute 90% of their net cash flows to the investors on a half yearly basis.
  • Operation efficiency of India Grid operations is 90% plus and is at par or better than PowerGrid
  • As these transmission assets generate a fixed amount of tariff there is likely to be very little volatility in cash flows.
  • As  customer is the government-owned transmission utility Power Grid. So, most likely there won’t be payment delays or defaults.
  • The assets have a very long life of about 35 years. Good for investors who wants to park his money in long-term debt.
  • In accordance with the InvIT Regulations, IndiGrid is required to distribute at least 90% of its net cash available for distribution to its Unitholders once at least every six months in every financial year.
  • IndiGrid (India Grid IPO) has been given a Corporate Credit Rating AAA/Stable by CRISIL, ‘IND AAA’/Stable by India Ratings and “IrAAA”(pronounced as IR triple A) with stable outlook by ICRA.
Cons
  • The present issue is the second initial public offer of units of an infrastructure investment trust registered under the InvIT Regulations in India. There are no listed infrastructure investment trusts in India; IRB Infra InvIT is likely to list soon. Hence, no comparison is available in terms of issue price and valuations.
  • The Initial Portfolio Assets may not achieve the projected financial performance referred to in the financial projections
  • IndiGrid is totally & perpetually dependent on Sterlite Power Grids to increase the size of its assets. book. Any slowdown in this or more intense competitive bidding in future in that may hurt future prospects of IndiGrid.
  • Capital losses as well as lower yields will accrue if any of the fund’s projects face any problem and suffers losses or lower cash flows than expected
  • Due to higher minimum trade-able lot, Liquidity may be low.High application amount also poses a greater risk to retail investor.
Overall Assessment
  • IndiGrid’s financials look unimpressive due to high interest and depreciation, Its debt of about 3400 crore should go down by IPO proceeds
  • As per assessment by certain market analysts, Sterlite Power Grid Ventures, through the IPO of its InvIT, India Grid Trust IndiGrid is expected to give 10.9 percent to its investors. This cannot be said with certainty. This is slightly lower than that projected by IRB InvIT but could be more assured due to nature of business and promoters i.e. Sterlite Group who enjoy greater financial stability and reputation
  • Close on heels of IRB Infra InvIT and this issue, Rel Infra has also launching roadshows for Roads InvIT IPO which is expected to open in 2 weeks. This can be indicative of good demand for this instruments or could also means promoters rushing to capitalize on the present +ve market scenario and euphoria around this new instrument.
  • InviTs are hybrid debt-equity instruments i.e. they are are neither pure equity nor pure debt and have  features of both.
  • Anchor issue of India Grid Trust  Fund IPO witnessed good response.
  • Though there are risks involved, InvIT has potential to give good returns. 
  • There are uncertainties as it  an untested product  and SEBI has purposely kept investments limits high and as product may have complexities and risks not suited to retail investors.
  • It cannot be denied that Investments in these Units involve a degree of risk and reward is capped to a slightly better return than NCDs and other debt based mutual funds.
  • IndiGrid’s revenue streams are can be considered as little more risk-free than IRB InvIT and as it operates in a transmission sector which has high entry barriers.
  • Due to lack of clarity of issue allotment  whether it shall be on proportionate basis or some other method shall be used, I have yet not decided whether to apply for this IPO or not. Overall I think the IPO & product  is ok even as it has not been tested and a listing of IRB InvIT would  help to bring more clarity.
  • The tepid listing of IRB Invit has cast a spell over this issue and retail investors are likely to stay away.  Response of QIB so far has been poor but many times happens on last day. It shall also be watched due to poor listing of IRBInvIT.
Standard disclaimer: I am not a SEBI registered analyst. I may have vested interest in every stock I discuss. Please do your own due diligence as stock market investments have high degree of inherent risk.