CRISIL has assigned its 'CRISIL AAA/Stable' rating to Rs 500 crore non-convertible debentures (NCDs) of India Grid Trust (IndiGrid), an infrastructure investment trust (InvIT). The NCDs will be used to refinance some of the existing debt of IndiGrid or its SPVs.
 
The rating on the remaining debt instruments and bank facilities has been reaffirmed at 'CRISIL AAA/CRISIL PP-MLD AAAr/CCR AAA/Stable'.
 
IndiGrid is currently in the process of acquiring GPTL from sponsor, Sterlite Power Grid Ventures Ltd (SPGVL) for Rs 1,075 crore, which will be entirely debt funded. Post the acquisition, the ratio of net debt to assets under management (AUM) is expected to increase to 53% from 49% as on March 31, 2020.
 
Being in the power transmission sector, which is an essential service, there has been no impact on IndiGrid's operations due to the lockdown to contain the spread of Covid-19. However, there may be some short-term delays in receipt of payments from Power Grid Corporation of India Ltd (PGCIL; 'CRISIL AAA/Stable/CRISIL A1+'), which, in turn, collects payments from power distribution companies (discoms). Monthly collection efficiency, which is usually over 95%, came down to 40-45% in April & May 2020. Collection efficiency is expected to increase to 70-80% in June and, subsequently, to over 90% by the second quarter of fiscal 2021, supported by the lifting of lockdown restrictions, as well as the liquidity injection announced by the Ministry of Finance for discoms. Any material deviation in these timelines will be a rating sensitivity factor. IndiGrid has sufficient liquidity with a cash balance of Rs 475 crore as on March 31, 2020, which is expected to cover all fixed obligation over the next 6 months.
 
IndiGrid plans to acquire 2 more sponsor assets¹ at an enterprise value of around Rs 5,500 crore. With these acquisitions, which will be funded entirely through debt, the ratio of net debt to AUM will go up to 67%. However, it will remain within the cap of 70% as defined by the Securities and Exchange Board of India (SEBI). Debt service coverage ratio (DSCR) post-acquisition is likely to remain healthy at above 1.20 times, in line with the rating category.
 
Further, IndiGrid has also signed a definitive agreement to acquire Jhajjar KT Transco Pvt Ltd from Kalpataru Power Transmission Ltd and Techno Electric & Engineering Co Ltd at an enterprise value of Rs 310 crore. The deal is subject to due diligence and regulatory approvals. While the asset size is small and is not expected to materially impact IndiGrid's credit profile, maintenance of liquidity and debt coverage indicators will remain closely monitored.
 
The ratings continue to reflect the trust's stable revenue profile, with all underlying special purpose vehicles (SPVs) operating under the point of connection (PoC) mechanism. This, along with the SPVs' established track record of maintaining line availability higher than normative levels and 35-year transmission service agreements (TSAs), ensures steady cash flow. The ratings also reflect sustenance of a strong financial risk profile.
 
The ratings are supported by debt service reserve account (DSRA)² equivalent to 3 months of ensuing principal and interest payments for the debt of IndiGrid and its SPVs.
 
These strengths are partially offset by modest operations and maintenance (O&M) risks for the underlying transmission assets and refinancing risk for the debt.

CRISIL has combined the business and financial risk profiles of IndiGrid with its underlying SPVs. This is because IndiGrid has direct control over the SPVs and will support them during any exigency. Furthermore, SPVs under the InvIT have to mandatorily dispense 90% of their net distributable cash flow (after meeting debt obligations) to the InvIT, leading to a highly fungible cash flow. Also, as per extant regulations, the cap on borrowing of an InvIT has been defined at a consolidated level (equivalent to 70% of the value of the InvIT assets).

Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.
 

Stable revenue profile and strong cash accrual should amply cover debt obligation over the medium term, leading to a healthy DSCR of above 1.2 times over the tenure of the debt. Moreover, the long life of the underlying assets, extending well beyond the debt tenure, should aid refinancing of the bullet repayment at favourable terms. Maintenance of a three-month DSRA/ISRA also supports liquidity.

CRISIL believes IndiGrid will generate a stable cash flow, backed by its transmission assets' ability to maintain stipulated line availability and implementation of the PoC pool mechanism for billing and collection.
 
Rating sensitivity factors
Downward factors
* Line availability falling below 98% on a sustained basis, thereby weakening cash flow
* Delay in collection under the PoC mechanism
* Lower-than-expected DSCR
* Inability to refinance in a timely manner

IndiGrid was set up on October 21, 2016, as an irrevocable trust pursuant to the trust deed under the provisions of the Indian Trusts Act, 1882, and registered with SEBI as an InvIT on November 28, 2016, under Regulation 3(1) of the InvIT Regulations. IndiGrid's initial portfolio assets comprised BDTCL and Jabalpur Transmission Company Ltd (JTCL). It has now acquired seven more assets: Purulia and Kharagpur Transmission Co Ltd (PKTCL), RAPP Transmission Co Ltd (RTCL), Maheshwaram Transmission Ltd (MTL), Patran Transmission Co Ltd (PTCL), NRSS, OGPTL, and ENICL.
 
IndiGrid is sponsored by SPGVL, which has experience of constructing and maintaining 12 transmission projects across India through 8,000 circuit kilometre (ckm) and 15,000 megavolt amp (MVA) of transformation capacity. IndiGrid had AUM of Rs 12,021 crore as on March 31, 2020.
 
All decisions pertaining to acquisition, divestment or enhancement of assets of IndiGrid are taken by the investment manager, Sterlite Investment Managers Ltd.
 
BDTCL's transmission project involved setting up 765-kilovolt (kV) single-circuit lines on the Vadodara-Dhule-Aurangabad (Gujarat-Maharashtra) belt and the Indore-Bhopal-Jabalpur (Madhya Pradesh) belt. The project involved total line length of 944 ckm and construction of a sub-station at Bhopal and Dhule each. Of the 8 elements of the project, 6 were commissioned by December 2014, ensuring 62% revenue generation, and 2 were commissioned in June 2015.
 
JTCL's transmission project involved a 765-kV 757-ckm line from Dharamjaygarh (Chhattisgarh) to Jabalpur (Madhya Pradesh) and a 765-kV single circuit 235-ckm line from Jabalpur to Bina (Madhya Pradesh). The Dharamjaygarh-Jabalpur line was commissioned on September 14, 2015, and the Jabalpur-Bina line on July 1, 2015.
 
PKTCL's transmission project involved two 400-kV double-circuit lines, with a total line length of 273 km from Purulia (West Bengal) to Ranchi (Jharkhand) and Kharagpur (West Bengal) to Chaibasa (Jharkhand). While one transmission line was commissioned in June 2016, the other was commissioned in January 2017.
 
RTCL's transmission project involved setting up a 400-kV double-circuit line, with a total length of 200 km from Rajasthan to Shujalapur (Madhya Pradesh). It was commissioned in March 2016.
 
MTL's transmission project involved the establishment of 2 construct 400 kV D/C lines, with a total line length of 237 km from Maheshwaram to Mehboobnagar and Nizamabad to Yeddumailaram (all in Telangana). It was commissioned in December 2017.
 
PTCL's transmission project involved setting up two 500-MVA substations at Patran (Punjab), with six 400 KV bays and eight 220 KV bays. The project was commissioned in June 2016.
 
NRSS's transmission project involved a 400-kV D/C 270 ckm line from Jalandhar to Samba, a 400-kV D/C 547-ckm line from Samba to Amargarh, a 400-kV LILO 14-ckm line from Uri to Wagoora, and a 400/220-kV 735 MVA pooling substation at Amargarh. The Jalandhar to Samba line was commissioned in June 2016, while the other elements were commissioned in September 2018.
 
OGPTL's transmission project is for system strengthening, and involves setting up a 300-km 765-kV double-circuit line from Jharsuguda to Raipur, and a 52-km 400-kV double-circuit OPGC-Jharsuguda line. The project was completed in April 2019.
 
ENICL's transmission project involved a double-circuit 400 kV transmission line to transfer power from north-eastern and eastern India to northern India. The 454-km line stretches from Bongaigaon in Assam to Siliguri in West Bengal (221 km), and from Purnia to Biharsharif in Bihar (233 km). ENICL has signed long-term TSAs with 18 transmission companies in northern India, wherein revenue, though assured, is linked to availability of the transmission line. The Purnia-Biharsharif line has been generating revenue since September 2013, while the Bongaigaon-Siliguri line has been operational since November 2014.

¹NER II Transmission Ltd (NER, rated 'CRISIL BBB-/Stable') and Khargone Transmission Ltd (KTL)
²Interest service reserve account (ISRA) for debt raised in IndiGrid, which has a 100% bullet repayment on maturity. No DSRA/ISRA to be created for MLDs as they do not have any obligation till the final maturity date

Any other information: Not applicable