India Grid InvIT IPO / IndiGrid InvIT IPO- What are the hidden factors?
After IRB InvIT Fund IPO got oversubscribed, now its turn of India Grid InvIT Fund IPO. India Grid InvIT (IndiGrid) Fund IPO would open for subscription on 17th May, 2017. India Grid InvIT Fund is a registered infrastructure investment trust under the InvIT Regulations. This is the second trust formed in India and first firm in power sector under InvIT Regulations. How is India Grid InvIT Fund IPO? What are the hidden factors in India Grid InvIT Fund IPO? In this article, I would provide some interesting insights and hidden facts and do India Grid InvIT Fund IPO Review.
What is InvIT in India?
InvITs are trusts that manage income-generating infrastructure assets, offering investors regular yields and a liquid way to invest in infrastructure projects.
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About India Grid InvIT Fund
India Grid Trust, an infrastructure investment trust (InvIT) sponsored by Sterlite Power Grid Ventures Ltd. They are an infrastructure investment trust established to own inter-state power transmission assets in India. IndiGrid was established on October 21, 2016 by its Sponsor, Sterlite Power Grid Ventures Limited, and is registered with SEBI pursuant to the InvIT Regulations. Its Sponsor is one of the leading independent power transmission companies operating in the private sector, with extensive experience in bidding, designing, financing, constructing and maintaining power transmission projects across India.
They are focused on providing stable and sustainable distributions to its Unitholders. They believe that they are well positioned to take advantage of the growth potential of India‘s power transmission industry given its financial position, support from its Sponsor and the robust regulatory framework for power transmission in India.
Issue details of India Grid InvIT Fund IPO
- IPO opens: 17-May-2017
- IPO closes: 19-May-2017
- Face Value: Rs 10 per unit
- Issue price band: Rs 98 to Rs 100 per unit
- Issue size: Rs 2,250 Crores
- Market lot: You need to apply for minimum lot of 10,205 units @ 98 to Rs 100 per unit. Means you need to invest Rs 10 Lakhs minimum. After listing you can sell them on stock exchanges in the lots of 5,103 i.e. Rs 5 Lakhs.
- Minimum investment: Rs 10 Lakhs on lower price band
- Leading Managers: Morgan Stanley, Citigroup Global Markets India, Edelweiss Financial Services
- Listing: BSE / NSE
- Download India Grid InvIT Fund IPO DRHP Prospectus at this link.
Objects of the India Grid InvIT Fund IPO issue
The object of the issue are to:
1. Investment in the Project SPVs;
2. General purposes;
3. Issue related expenses.
Company Financials – India Grid InvIT Fund IPO
The financials does not make any sense as it is newly formed Trust.
What are India Grid InvIT Fund Key Strenghts?
- Stable cash flows from assets with minimal counter party risks
- Strong Financial Position
- Ownership and location of assets
- Strong lineage and support from the Sponsor
- Rights to its Sponsor‘s pipeline of power transmission projects
- Strong corporate governance and skilled and experienced Investment Manager.
What is dividend policy where investors may get rewards?
1) At least 90% of distributable cash flow of the SPV shall be distributed to the InvIT in proportion to its holding in the SPV.
2) At least 90% of distributable cash flow of the InvIT shall be distributed to the unit holders.
3) Dividend declared to be paid within 15 days.
Reasons to invest in India Grid InvIT Fund IPO
- It is the second company to get approval from SEBI under Infrastructure Investment Trust (InvIT) after IRB InvIT Fund. It would be the first trust in power sector to get formed in InvIT regulations.
- Trust has good credit rating. CARE has rated as CARE AAA (Stable) IND RA as IND AAA Outlook Stable and ICRA as IR AAA. This indicates credit worthness of Trust and not the units /shares that would be issued by the trust.
- 90% of available cash flow would be distributed to unit holders by way of dividend which is tax free. This is unique business model, we need to see in future how this would work exactly.
Reasons not to invest in a India Grid InvIT Fund IPO
- IndiGrid is a new entity and does not have an established operating history, which will make it difficult for our future performance to be assessed.
- They may be unable to operate and maintain its power transmission projects to achieve the prescribed availability.
- They may lose tariff revenues and incur significant repair and replacement costs in the event its power transmission projects are rendered inoperable due to force majeure events.
- Substantially all its revenues are derived from tariff payments received from LTTCs. A delay in payments of point of connection (“PoC”) charges to the CTU by users and customers may adversely affect its cash flows and results of operations.
- As the terms and conditions, including the tariff structure under the TSAs are generally fixed, they may not be able to offset increase in costs, including operation and maintenance costs, solely from tariffs payable to them under the TSAs.
- The ability of the Project Manager to ensure that its power transmission systems are fully operational at all times may be subject to the limitations of the power grid, existing equipment or operational risks outside of their control.
- The Initial Portfolio Assets may not achieve the projected financial performance referred to in the financial projections, which would adversely affect its ability to meet its projected distributions to its Unitholders.
- The assumptions in “Projections of Revenue from Operations and Cash Flow from Operating Activities” are inherently uncertain and are subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those projected.
- Changes in government regulation could adversely affect its profitability and ability to make distributions.
- New units may be issued to the Sponsor, which would dilute the holdings of other Unitholders.
- Other risk factors (Internal and external) can be viewed in the draft prospectus.
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Recommendation / Investment strategy – India Grid InvIT Fund IPO
Financials does not make any sense here as they are combined financials. It has unique business model. India Grid’s Initial Portfolio Assets comprise of 2 companies of Sterlite Grid I Limited (Bhopal Dhule Transition company Ltd and Jabalpur Transmission company Ltd). However, minimum investment of Rs 10 Lakhs makes this IPO unattractive. Such funds may provide 8% to 12% returns before tax. If the issue is oversubscribed you may get listing gains too. If you can invest Rs 10 Lakhs for long term, this would be definitely a best bet to get higher returns. If you cannot invest such large money, post listing invest Rs 5 Lakhs.
Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment options.
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India Grid InvIT IPO – What are the hidden factors
Period of validity of units is not clear?
Will capital be returned post fund period?
Can you please clarify.
Hi Sachin, Capital would not be returned, hence these are high risk