In a significant move, the Cabinet Committee on Economic Affairs (CCEA) has approved monetization of assets of Power Grid Corporation of India Ltd (PGCIL) through the Infrastructure Investment Trust (InvIT) model.
Asset recycling is a key strategy of the Indian government to unlock the capital invested in operational assets of PSUs.
With this, PGCIL has become the first public sector undertaking under the Union power ministry to get such approval. As a consequence, PGCIL now has an opportunity to undertake asset recycling by monetizing its assets through the InvIT model and using the proceeds thus earned to finance new and under-construction capital projects.
To begin with, PGCIL will monetize assets with a gross block of over Rs.7,000 crore. These assets, mainly high-voltage transmission lines and substations, are held by PGCIL in the form of special purpose vehicles. These are projects that PGCIL has won through the tariff-based competitive bidding (TBCB) route. Each of these projects is developed, owned and managed by a special purpose vehicle, which is a wholly-owned subsidiary of PGCIL.
Currently, PGCIL meets its capital expenditure through internal accruals and debt. Now, a new financing window, in the form of InvIT, opens for PGCIL. Not only would PGCIL be able to finance its new and ongoing capex plans but the premium earned from this asset monetization will help shore up the company’s net worth.
It may be recalled that the Budget for 2019-20 emphasized the need for innovative financing models including launching of InvITs.
Rationale
In general, floating of InvITs is an innovative means of asset recycling. Since the assets that are sold to the InvIT are operational, this is sometimes referred to as “brownfield” asset monetization.
In the case of Central PSUs, asset recycling becomes a key strategy of the Indian government to unlock the capital invested in operational assets, typically in the infrastructure sector. For PGCIL, the proposed InvIT, apart from raising relatively cheaper finance, provides opportunity to domestic and global investors to invest in India’s power transmission sector. Sovereign wealth funds also become potential investors in InvITs.
Incidentally, PGCIL has planned to undertake Rs.20,500 crore worth of total capital expenditure in FY21 and FY22. The Government of India has enacted an enabling regulatory and taxation framework for InvITs and the proposed InvIT by PGCIL would deepen this market, a government release noted.
InvIT in power transmission
India Grid Trust (known as IndiGrid) is India’s first InvIT in the power sector. As of today, it is also the only InvIT in the power sector. Sponsored by Sterlite Power Grid Ventures Ltd, IndiGrid currently has assets under management (AUM) of around Rs.12,200 crore.
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