India Grid IPO opens today; read expert views before investing

Highlights

• India Grid Trust raised Rs 1,012 crore from anchor investors
• India Grid Trust plans to raise Rs 2,250 crore from IPO
• The company has set a price band of Rs 98- Rs 100 per piece

India Grid Trust, an infrastructure investment trust (InvIT), has opened its initial public offer (IPO) on Wednesday. It is the second InvIT to get listed on exchange 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. 

Ahead of its IPO, India Grid (Indigrid) raised over Rs 1,012 crore from anchor investors on Tuesday. The IPO which opened today will close on May 19.

The company has set a price band of Rs 98- Rs 100 per piece. The fresh issue is expected to raise Rs 2,250 crore. It has allotted 10.2 crore units on an average price of Rs 100 to 19 anchor investors for a sum of Rs 1,012.44 crore. 

The lead managers of the IPO are Morgan Stanley India Company Private Limited, Citigroup Global Markets India Private Limited and Edelweiss Financial Services Limited.

About the company

IndiGrid 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. 

SPGVL is one of the independent power transmission companies operating in the private sector, with extensive experience in bidding, designing, financing, constructing and maintaining power transmission projects across India. Indigrid is focused on providing stable and sustainable distributions to unit holders.

According to a report by Kotak Securities, of the 11 inter-state power transmission projects owned by the Sponsor, Indigrid will initially acquire two projects with a total network of eight power transmission lines of approximately 1,936 ckms and two substations having 6,000 MVA of transformation capacity across four states.

The company will be utilising issue proceeds towards reduction of debt of the both projects. Both transmission assets are operational and will distribute at least 90% of net cash available for distribution to InvIT unit holders. 

Should you subscribe?

With AAA corporate credit rating, the company has strong lineage and support from sponsor. The sponsors have extensive experience in identifying, successfully bidding, designing, financing, constructing, operating and maintaining power transmission projects across India.

Moreover, the company's revenues are derived out of contracted tariffs under long term contracts (up to 35 years) from assets with relatively low operating and maintenance costs.

Inter-state power transmission projects receive tariffs on the basis of availability, irrespective of the quantum of power transmitted through the line.

On the other side, 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, itis subject to a penalty which reduces the Annual Transmission Charge it receives for the period.

Post the IPO, the debt of the InviT Trust will be Rs 10 billion (external). Of Rs 26.7 billion of debt repaid, Rs 22.5- Rs.23 billion would be through issuance of units through the IPO, while Rs 4.2 billion could be converted into units to the Sponsor, the report added.