HOW WOULD YOU DESCRIBE INDIGRID IN BRIEF?
IndiGrid is India’s first power-sector infrastructure InvIT. Since our listing in June 2017 with two transmission assets, we have further acquired six more operational transmission assets over last 18 months and expanded the portfolio size almost three times, from Rs 3,800 Cr to Rs 11,100 Cr. We have also secured an additional asset pipeline of Rs. 7,500 Cr which provides us strong visibility for future growth. Our quarterly distributions have grown from Rs 78 Cr to 175 Cr.
Superior risk adjusted returns:
We listed in June 2017 with a focus on providing superior risk adjusted return to investors and grow it consistently. We have delivered a total return of greater than 25% since listing in June 2017. We have delivered Rs. 30.6 distribution/ unit to our investors. We have been a low volatility entity with a beta of 0.07. The following table elaborates how IndiGrid has performed since listing in comparison to comparable equity indices, dividend paying stock in the same sector (power transmission), NSE 500 as well as the 10-year GSEC.
So, with a focus on acquiring stable operating assets, long tenure contracts, and quarterly distribution, IndiGrid has delivered superior risk-adjusted returns to its unitholders on a Total Return basis while displaying a Beta (a measure of volatility) of just 0.07. Providing Stable and growing returns to our investors with pillars of strong corporate governance standards and world class asset management practices is our endeavor.
What were the initial challenges faced by the company since its inception, during its journey to become the first infrastructure investment trust in the Indian power sector?
InvITs are formed by complying with the SEBI Infrastructure Investment Trust Regulation, 2014. There are four important parties to any InvIT —Investment manager, Sponsor, Project manager and the Trustee. Being the first one in the sector and the second one overall was a big challenge due to lack of any experience and benchmarks.
Lack of investor knowledge, yet developing regulatory framework, local credit crisis, lack of adequate sources of debt funding have been some of the critical challenges by the management team. However, through continuous engagement with all stakeholders (regulatory and market participants) has enabled IndiGrid to overcome some of these challenges. Even today, while InvITs are well regulated by SEBI and offer predictability of cash flows from operating assets, there are some policy changes required such as enabling insurance companies and pension funds to subscribe to debt securities issued by InvITs.
How does InvIT work for the solar energy and wind energy sector? How can this instrument be used to bring in more investments in a constrained capital market?
InvIT platform has two main advantages –
- It allows investors like (FIIs, banks, insurance companies, pension funds, retail investors) to invest well governed yield generating operating assets with predictable cash flows and low volatility
- It enables developers to invest more in the development projects and create more capacity
With these objectives, InvIT for wind and solar energy can open up a new avenue of capital and provide much needed to some of the developers.
Globally this model has worked very well. Till date, there have been over 400 listings of similar instruments accounting for over USD 1 trillion of investments across the world. These instruments have assisted countries to meet their capital needs for the infrastructure and real estate sectors. Long-term infrastructure assets like roads, power generation, telecom towers, power transmission, warehouses, ports, gas pipelines etc. are owned by such platforms which offer investors stable income and growth for long-term. They are considered as high dividend-paying investments suitable for investors looking for long-term, stable cash flow with moderate capital appreciation.
Take us through the role of IndiGrid in aiding power sector in its transformation efforts
In general, India’s infrastructure sector requires USD 200 Billion investment to achieve its growth vision. A substantial portion of this investment is envisaged via private sector participation. This would need harnessing investments from foreign institutions, domestic institutions as well as retail investors. This flow of capital through InvITs could work wonders for the power sector, which is forecasted to attract investments worth INR 11.56 trillion between 2017 and 2022 in thermal, hydro, nuclear and renewable segments. We believe this is the most opportune time for InvITs in the power sector, offering a unique investment proposition in a sector that has traditionally witnessed a great degree of volatility and lack of attractive investment opportunities. Historically, there have been limited opportunities for owning power utility assets by investors and earn a regular annuity like dividend income. Imbibing the spirit of the world’s largest democracy, InvITs have the potential to provide an inclusive ownership of the nation’s power infrastructure to investors while earning a stable and growing yield.
IndiGrid offers a unique platform for investors to get a pie of power transmission assets and at the same time provide an alternative source of capital to meet the capital requirements. In addition to this, robust regulatory framework by SEBI, strong corporate governance standards and asset management practices followed by IndiGrid provide confidence to investors of operating and maintaining operating assets.
How does IndiGrid help ensure adequate transmission evacuation for RE capacities to help support the grid?
IndiGrid can support the infrastructure required for evacuating renewable energy by owning and maintaining the infrastructure. In other words, IndiGrid as a platform can acquire transmission projects and free up capital for developers to be re-invested in under-construction projects such as GEC projects.
While IndiGrid’s business strategy is to focus largely on acquiring operational assets, the GEC projects are another opportunity for us to buy a new project upon its COD. The GEC projects awarded are under the TBCB mechanism and are part of Inter-state transmission scheme (ISTS). Our entire portfolio is of the ISTS regime and we would certainly evaluate GEC lines as and when they are commissioned, which can help developers in RE space.
As recently, SEBI enabled rights issue for InvITs and REITs (real estate investment trusts) with new guidelines, do such actions help build investor confidence?
Yes, such measures go a long way in boosting investor confidence. Right issuance is the most preferred route of raising capital given the fact it gives preference to existing investors and is faster to execute. Also, it allows all categories of investors especially the retail ones to participate in the platform at par with institutional investors. It allows for efficient capital raising and better price discovery.
As we read, IndiGrid has lately been on an acquisition spree of adding more power transmission assets to its already vast portfolio. What are the recent strategic acquisitions by the company and growth plans envisaged for the near future?
Our focus is to acquire projects with long contract period and low operating risk which adds to the predictable yield for our investors. We remain committed to achieving accretive growth not only through the acquisition of its sponsor assets but through the acquisition of third-party assets. We keep evaluating many opportunities beyond the identified assets with Sterlite Power. The current transmission sector landscape is very robust across ~15,000 ckms and transformative capacity of ~17,000 MVA with ~22 total Inter-State and Intra-State Projects. We also see that over Rs 10,000 Cr worth of bidding opportunities exist right now and for IndiGrid it provides a very good growth outlook going forward beyond 2022. Moreover, there is also the opportunity of public monetization by state and central transcos, should they choose to monetize.
In August 2018, IndiGrid acquired its first Third Party Transmission Asset – Patran Transmission Company, a 1,000 MVA Transmission Asset located in Punjab from Techno Electric & Engineering Co.
Our recent preferential issue of Rs 2,514 Cr in May 2019 was highly successful with participation from marquee investors including KKR and GIC. KKR also expressed interest to become a sponsor of IndiGrid and acquired majority interest in the investment manager of IndiGrid. With this preferential issue, our net debt/AUM ratio is only ~45%. Therefore, there is enough headroom for us to acquire more projects without incremental capital raise.
With the backing of investors such as KKR and GIC who are keen to deploy more capital for the growth of this platform for value accretive projects, we are confident that equity capital will be available for good projects. In addition to this, we are also working with SEBI to enable rights issue for InvITs which will enable all existing investors to participate equally in any new capital raises.