PowerGrid Infrastructure Investment Trust opened its IPO offer today. This is the first InvIT (infrastructure investment trust) IPO by a state-owned entity. Here are the details on the issue and what investors considering subscription to the issue may expect:
What is an InvIT?
InvITs is a new investment instrument and a fund raising tool for the infrastructure developers. Investors can directly invest in small amounts in revenue-generating real estate projects that also go well with the ongoing cash requirements of developers. The move will help developers meet their project completion deadlines who otherwise falter attributing funding concerns. And for the investment made, you as an investor get a part of cash flows. Experts opine that the instrument is also likely to reduce funding pressure on the banking system.
Through the issue, the company aims to raise Rs. 7735 crore. The offer will include at least 10 percent of the outstanding units on a post offer basis.
Ipo opening date April 29, 2021
IPO closing date May 3, 2021
Issue price Rs. 99- 100 per equity share
Market lot 1100 shares
Minimum order quantity 1100 shares and in multiples of 1100 units thereafter. So minimum investment here shall be Rs. 1.1 lakh
The lead managers to the offer are ICICI Securities, Axis Capital, Edelweiss Financial Services, and HSBC Securities and Capital Markets (India). As for the company, IDBI Trusteeship Services is the Trustee, while PowerGrid Unchahar Transmission is the investment manager.
The proceeds of the issue will be utilized for providing funding to the initial portfolio assets for repayment of pre-payment of debt, including any accrued interest, availed by the Initial portfolio assets and for other general corporate tasks.
Following the utilisation of the offer proceeds, its consolidated borrowings and deferred payments net of cash and cash equivalents will be below 49 percent of the total value of assets, as prescribed by the InvIT Regulations.
Rating of the InvIT
PowerGrid InvIT has been rated as stable by ratings firms such as CARE Ratings Limited, ICRA Limited, and CRISIL Ratings Limited.
Valuations of Powergrid InvIT IPO:
IPO values the InvIT at 3.5 times its book value that seems a higher premium compared to its sponsor Power Grid Corp and IndiGrid InvIT. But, analysts believe higher valuations are justified because of the better return ratio of Power Grid InvIT that has a RoE of 25% in FY20 against 17% of Power Grid and IndiGrid's 10%.
Brokerages' take on the issue of PowerGrid Infrstructue Investment Trust
GEPL Capital said that the Power Grid has a monopoly status in the area of power transmission.With the government's focus on renewable energy generation, we expect the transmission volumes to pick up and grow at a 9-10% CAGR over the next 5 years. So, GEPL Capital is advising investors to subscribe to the issue.
Risk-averse investors can subscribe to the InvIT and expect an annual yield of 10-12 percent annually. The return typically shall be higher than the fixed deposit. "Investors preferring annuity-like income over growth can subscribe to the issue from a longterm perspective," the Economic Times quoted Vikas Jain, analyst, Reliance Securities as saying. "Given expected cash flow by the company and 90% of net distributable cash flows to be distributed amongst the unitholders, dividend yield at upper price band comes at 11-12%, which appears to be healthy while any possible price appreciation will improve its overall returns," Jain said.