PowerGrid Infrastructure Investment Trust

• 27 Apr 2021

Why in News

The Power Grid Corporation of India (PGCIL) launched its Infrastructure Investment Trust (InvIT) - PowerGrid Infrastructure Investment Trust (PGInvIT).

Key Points

• About PGInvIT:
  
  • This is the first time a state-owned entity (PGCIL) is monetizing its infrastructure assets through the InvIT route.
  • This will be only the third InvIT to be listed in the Indian markets, after IRB InvIT and India Grid Trust, both of which went public in 2017.
  • The InvIT route was proposed by the Centre as an alternative fundraising route for state-run companies to manage funding requirements without having to depend on government support.

Power Grid

• It is a public limited company under the administrative control of the Ministry of Power.
• It is the largest power transmission company in India.
• It started its commercial operation in the year 1992-93 and is today, a Maharatna company.

• About Infrastructure Investment Trust (InvIT):
  
  • It is a collective investment scheme similar to a mutual fund, which enables direct investment of money from individual and institutional investors in infrastructure projects to earn a small portion of the income as return.
  • InvITs can be treated as the modified version of REITs (real estate investment trusts) designed to suit the specific circumstances of the infrastructure sector.
  • It is created to hold income-generating and operational infrastructure assets such as roads, power transmission lines, gas pipelines, etc.
    
    • These assets have long-term contracts with strong counterparties that provide a steady cash flow over the long term – typically 15-20 years.
  • The InvITs are regulated by the SEBI (Infrastructure Investment Trusts) Regulations, 2014.
  • An InvIT consists of four elements:
    
    • Trustee has the responsibility of inspecting the performance of an InvIT.
    • Sponsor(s) are promoters of the company that set up the InvIT.
    • Investment Manager is entrusted with the task of supervising the assets and investments of the InvIT.
    • Project Manager is responsible for the execution of the project.
  • Units of InvITs can be listed and traded on a stock exchange, providing them liquidity.
    
    • Or they can be private and unlisted, in which case they are not publicly traded and largely invested in by institutional investors.
• Advantages of Setting up InvITs:
  
  • For sponsors (infrastructure developers), InvITs provide a convenient route to monetize revenue-generating assets, unlock equity gains, and deleverage their balance sheets (i.e. to reduce debts).
  • InvITs also present a more tax-friendly structure. Being a trust, all income received by the InvIT from underlying assets receives a pass-through treatment and is not taxable at the InvIT level.
  • For investors such as banks, financial institutions, pension funds, insurance companies, and even retail investors, InvITs provide a good low-risk investment opportunity.
• Disadvantages of InvITs:
  
  • InvITs are sensitive to changes in regulatory and tax law.
  • Infrastructure assets are not inflation-linked in India.
    
    • A high rate of inflation has a significant impact on the performance of InvITs.

Source:BS