India Grid InvIT IPO kicks off; here’s what brokerages say

NEW DELHI: India Grid Trust became only the second entity to hit the capital market with an initial public offering ( IPO) of its Infrastructure Investment Trust ( InvIT) on Wednesday.

The IPO comes days after the IPO of IRB InvIT Fund witnessed an overwhelming 8.6 times subscription earlier this month.

India Grid’s issue is also the first power sector InvIT ever.

By 1 pm, the IPO received bids for 11.53 lakh units, compared with 12.62 crore units on the block.

The InvIT, promoted by power transmission asset operator Sterlite Power Grid Ventures, on Tuesday allotted 10.12 crore units to 19 anchor investors, amounting to Rs 1,012.44 crore. Besides, it looks to sell 12.62 crore units in the price band of Rs 98-100 in the three-day issue that kicked off on Wednesday. The total issue size is worth Rs 2,250 crore.

The minimum bid quantity for the issue is 10,206 units and in multiples of 5,103 units thereafter. According to rules, one needs to invest at least Rs 10 lakh to subscribe to InvIT issues. Thus, these IPOs are not for retail investors, but for high-net worth individuals and institutions.

India Grid intends to utilise the funds to partially repay external debt and replace loans from promoter, thus slashing interest burden in a bid to improve cash flows.

“With back-ended repayment of outstanding loans (after current repayment) and the recent tariff hike, we estimate the InvIT investment to deliver an 8-9 per cent internal rate of return (at 90-100 per cent dividend payout). There is an upside potential from the extended life of assets beyond the useful life of 32 years and future acquisition of more transmission assets, which will be offered to the InvIT,” JM Financial said in a note.

The investment mechanism facilitates capital into the infrastructure sector by pooling small sums of money from investors to help infrastructure developers monetise infrastructure assets and complete projects that sometimes get stalled midway due to lack of funding.

“We find this InvIT to be a stable cash flow product for domestic mutual funds/insurance companies, given the exemption from dividend distribution tax,” it said.

The portfolio of India Grid comprises two power transmission projects located across four states. The projects include eight EHV overhead power transmission lines with a total circuit length of approximately 1,936 km and two sub-stations with 6,000 MVA of transformation capacity.

Kotak Securities in a report said as per InvIT regulations, not less than 90 per cent of net distributable cash flows of each of the initial portfolio assets, namely BDTCL and JTCL, will be distributed to India Grid and not less than 90 per cent of the net distributable cash flows of India Grid will be distributed to the unit holders.

A stable financial position, strong linkage and support from sponsor, firm cash flow and strong corporate governance are some of the key competitive strength of this InvIT.