| POWERGRID Infrastructure Investment Trust | ||
| 'Provisional CCR AAA/Stable' rating assigned | ||
| Rating Action | ||
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| & ^A prefix of 'Provisional' indicates that the rating centrally factors in the strength of specific structures, and will be supported by certain critical documentation by the issuer, without which the rating would either have been different or not assigned ab initio. This is in compliance with directive issued by the Securities and Exchange Board of India (SEBI) on May 6, 2015, on 'Standardising the term, rating symbol, and manner of disclosure with regard to conditional/provisional/in-principle ratings assigned by credit rating agencies (CRAs)' | ||
| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its 'Provisional CCR AAA/Stable' rating to POWERGRID Infrastructure Investment Trust (POWERGRID InvIT).
POWERGRID InvIT is sponsored by Power Grid Corporation of India Ltd (PGCIL; ‘CRISIL AAA/Stable/CRISIL A1+’). PGCIL will divest five of its operational tariff-based competitive bidding assets to the InvIT. The trust has been registered with the Securities and Exchange Board of India (SEBI) and will shortly file its offer document for listing units. PGCIL will have at least 15% stake in the InvIT, while public unitholders will hold the remaining. The proceeds from the listing will be used to acquire the assets and repay the existing debt. The InvIT is likely to have no external borrowings.
The InvIT will acquire 74% stake in five PGCIL special purpose vehicles (SPVs) by utilising the listing proceeds. The remaining 26% will be acquired upon expiry of the lock-in clause in the SPVs’ transmission service agreements (TSAs). POWERGRID Unchahar Transmission Ltd (PUTL; a wholly owned subsidiary of PGCIL) will act as the InvIT’s investment manager.
The rating reflects the trust's expected stable revenue profile, with all the underlying transmission SPVs to be acquired operating under the point of connection (PoC) mechanism. This, along with the SPVs' healthy track record of maintaining line availability higher than normative levels and 35-year TSAs, ensures steady cash flow. The rating also reflects the InvIT’s strong financial risk profile. These strengths are partially offset by operations and maintenance (O&M) risks for the underlying transmission assets. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of POWERGRID InvIT and the SPVs it plans to acquire, as the InvIT will have direct control over the SPVs and will support them in any exigency. Furthermore, the SPVs will have to mandatorily dispense 90% of their net distributable cash flow (after meeting the debt obligation) 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 49%[1] of the value of the InvIT assets).
Please refer Annexure: List of entities consolidated, which captures the list of entities considered and their analytical treatment. |
Key Rating Drivers & Detailed Description Strengths * Stable revenue of underlying operational assets The five SPVs to be acquired have stable operations with a track record of above-normative transmission line availability of over two years. Revenue stability of the SPVs is driven by their TSAs, which ensure payment of stipulated tariff subject to achievement of normative line availability of 98%.
All SPVs to be acquired are interstate transmission system (ISTS) licensees and come under the PoC pool mechanism, wherein the central transmission utility, collects monthly transmission charges from all designated ISTS customers on behalf of the licensees. All ISTS licensees are then paid their share of transmission charges from the centrally collected pool. This method mitigates counterparty risks as the risk of default or delay by a particular customer is distributed among all ISTS licensees in proportion to their share. Despite weak counterparties, PGCIL has a track record of maintaining strong collection efficiency. The SPVs will continue to benefit from the strong collection efficiency of PGCIL and diversification of counterparty risk under the PoC pool mechanism.
Two SPVs to be acquired by the trust i.e. POWERGRID KalaAmb Transmission Ltd and POWERGRID Warora Transmission Ltd, receive 85% and 50% of their revenue, respectively, directly from Himachal Pradesh State Electricity Board and NTPC Ltd, respectively. However, the collection efficiency of these assets has been healthy, with payments coming in within 45 days of billing.
* Strong financial risk profile The trust will likely have strong, stable cash flow, given the long-term TSAs of its underlying SPVs and strong collection efficiency. It will utilise its listing proceeds to repay all the debt in the SPVs. There will be no external debt in the trust as of now. It may rely on borrowings to acquire assets in the future. However, this will be constrained by SEBI’s prescribed debt cap of 49% of assets under management (AUM). The debt/AUM ratio can be increased to 70%, post six continuous dividend distributions by the trust and the maintenance of ‘AAA’ credit rating.
Future acquisitions by POWERGRID InvIT and their impact on its financial risk profile will be key monitorables.
Weakness * O&M risks for SPVs Maintenance of high line availability is critical to ensure stability of revenue in the power transmission sector. Although the O&M expense forms a small portion of the revenue, improper line maintenance may lead to revenue loss and weaken SPVs' loan repayment capability. However, these risks are mitigated by low technical complexity and routine O&M activity, and appointment of PGCIL as O&M agency by the SPVs. |
Liquidity: Superior Stable revenue profile is expected to lead to strong cash accrual. No external debt will result in limited external liabilities for the trust. The management is expected to exercise prudence in terms of maintaining adequate liquidity buffer in the form of a debt service reserve account whenever external debt is raised. |
Outlook Stable CRISIL Ratings believes POWERGRID InvIT will generate stable cash flow, backed by the ability of its transmission assets to maintain the stipulated line availability and implementation of the PoC pool mechanism for billing and collection. |
Rating Sensitivity factors Downward factors
The 'provisional' rating will be converted into a 'final' rating on:
Additional documents, if any, executed for the transaction will also have to be provided. A rating rationale/report indicating conversion of the 'provisional' rating into a 'final' rating will be published on the CRISIL Ratings website on receipt of these documents. |
About the Company POWERGRID InvIT is an irrevocable trust pursuant to the trust deed under the provisions of the Indian Trusts Act, 1882, and was registered with SEBI as an InvIT on January 7, 2021, under Regulation 3(1) of the InvIT Regulations.
It is sponsored by PGCIL. It proposes to list its units shortly, post which PGCIL will hold at least 15% stake in the InvIT. All decisions pertaining to acquisition, divestment or enhancement of POWERGRID InvIT’s assets will be taken by the investment manager, PUTL.
The trust plans to utilise the listing proceeds to acquire five SPVs from PGCIL. Details of the SPVs are as below:
About the Sponsor PGCIL was incorporated in 1989 to set up extra-high voltage alternating current and high-voltage direct current (HVDC) transmission lines. The company moves large blocks of power from the central generating agencies and areas that have surplus power to load centres within and across regions. It is under the administrative control of the Ministry of Power, Government of India. PGCIL owns and operates an extensive and nationwide network of transmission lines, which mainly comprises 765 kilovolt and 400-kilovolt transmission lines and HVDC transmission systems.
[1] Can increase to 70% post 6 continuous dividend distributions and maintenance of ‘AAA’ credit rating. |
Key Financial Indicators
*The trust is yet to commence operations |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities |
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