| POWERGRID Infrastructure Investment Trust | ||
| 'CCR AAA/Stable' converted from Provisional Rating to Final Rating for Corporate Credit Rating | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has converted the provisional corporate credit rating assigned to POWERGRID Infrastructure Investment Trust (PG InvIT) to a final rating of 'CCR AAA/Stable'. CRISIL Ratings has now received the confirmation of completion of pending steps, in line with terms of the transaction when provisional rating was assigned. PG InvIT has acquired transmission assets held under five special purpose vehicles (SPVs) from the sponsor, Power Grid Corporation of India Ltd (PGCIL; ‘CRISIL AAA/Stable/CRISIL A1+’), and has been listed on the stock exchanges since May 14, 2021. Hence, CRISIL Ratings has converted the provisional rating to a final rating.
The initial public offer of Rs 7,735 crore comprised a fresh issue of Rs 4,993 crore by PG InvIT, which was utilised to repay the existing sponsor debt in the five SPVs and offer for sale of Rs 2,742 crore by the sponsor.
PG InvIT has acquired 74% equity stake in each of the SPVs; the remaining 26% will be acquired on expiry of the lock-in clause in the transmission service agreements (TSAs) of the SPVs. The InvIT has no external borrowings. POWERGRID Unchahar Transmission Ltd (PUTL; a wholly owned subsidiary of PGCIL) is the investment manager of the InvIT.
The rating reflects the expected stable revenue profile of PG InvIT, with the five transmission SPVs operating under the centralised revenue sharing regulations of the Central Electricity Regulatory Commission (CERC) for interstate transmission assets. This, along with the healthy track record of the SPVS in maintaining line availability higher than the normative levels and their 35-year TSAs, ensures steady cash flow. The rating also reflects the trust’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 PG InvIT and its SPVs, as the trust 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 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 have stable operations with a track record of above-normative transmission line availability over 2-4 years. Their revenue stability is driven by TSAs, which ensure payment of stipulated tariff subject to achievement of normative line availability of 98%.
All the SPVs are interstate transmission system (ISTS) licensees and come under the revenue sharing regulations of the CERC, wherein the central transmission utility (CTU), 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. 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. The CTU has a track record of maintaining strong collection efficiency. The SPVs will continue to benefit from the strong collection efficiency of the CTU and diversification of counterparty risk under the revenue sharing mechanism.
One of the SPVs, POWERGRID KalaAmb Transmission Ltd, receives 85% of its revenue directly from Himachal Pradesh State Electricity Board. However, the collection efficiency of the asset 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 utilised its listing proceeds to repay all the debt in the SPVs. The trust has no external debt as of now. It may rely on borrowings to acquire assets in the future. However, this will be constrained by the debt cap of 49% of assets under management (AUM) prescribed by the Securities and Exchange Board of India. The debt to 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 PG 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 loan repayment capability. However, these risks are mitigated by low technical complexity and the routine nature of O&M activity, and appointment of PGCIL as O&M agency by the SPVs and as project manager to PG InvIT. |
Liquidity: Superior Stable revenue is expected to lead to strong cash accrual. No external debt will result in limited external liabilities for the trust. The management is likely 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 PG InvIT will generate stable cash flow, backed by the ability of its transmission assets to maintain the stipulated line availability and the centralised mechanism for billing and collection. |
Rating Sensitivity Factors Downward Factors
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About the Trust PG 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. IDBI Trusteeship is the trustee of PG InvIT.
PG InvIT is sponsored by PGCIL, which currently holds around 15% stake in, and has been appointed as the project manager to, the trust. All decisions pertaining to acquisition, divestment or enhancement of the assets of PG InvIT will be taken by the investment manager, PUTL.
Details of the SPVs under PG InvIT:
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About the Sponsor PGCIL, a Maharatna central public sector enterprise under the administrative control of the Ministry of Power, Government of India, is the country’s largest transmission company. It was incorporated in 1989 and is primarily engaged in establishment of interstate power transmission infrastructure comprising generation linked projects, renewable energy-linked projects, green energy corridors, and system strengthening projects assigned to it by the central government or secured by it under the tariff-based competitive bidding process. 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 and cross-border interconnections.
[1] Can increase to 70% post six continuous dividend distributions and maintenance of ‘AAA’ credit rating. |
Key Financial Indicators
*The trust had not commenced commercial operations till March 31, 2021. |
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. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
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