The Power Grid Corporation of India (PGCIL) has recently unveiled its Infrastructure Investment Trust (InvIT) known as the PowerGrid Infrastructure Investment Trust (PGInvIT). This event marks the first instance wherein a state-owned entity has decided to monetize their infrastructure assets through InvIT route. PGCIL is the third InvIT to be listed in the Indian markets after IRB InvIT and India Grid Trust, both launched in 2017. This initiative by the Government offers an alternative fundraising route for state-run companies thereby liberating them from the dependence on government support for managing their funds.
About Power Grid
Power Grid is a public limited company serving under the Ministry of Power’s administrative control. As the largest power transmission company in India, it initiated its commercial operations back in 1992-93 and today stands as a Maharatna company.
Understanding Infrastructure Investment Trust (InvIT)
Essentially, an Infrastructure Investment Trust (InvIT) resembles a mutual fund enabling direct investment of money in infrastructure projects from both individuals and institutional investors. This way, they get to earn a small portion of the income as returns. InvITs can be considered as a modified version of REITs (real estate investment trusts), redesigned to fit the specific conditions of the infrastructure sector. InvIT is designed to hold income-generating and operative infrastructure assets such as roads, gas pipelines, power transmission lines etc.
Long-term contracts with strong counterparties oversee these assets, ensuring a steady cash flow over the long term with typical terms ranging between 15-20 years. InvITs function under the supervision of the SEBI (Infrastructure Investment Trusts) Regulations, 2014. They consist of four components:
– Trustee
– Sponsor(s)
– Investment Manager
– Project Manager
Listing and Trading of InvIT Units
The units of InvITs can be listed and traded on a stock exchange, thus providing liquidity. Alternatively, they can also be private and unlisted where they are not publicly traded and mostly invested in by institutional investors.
Pros and Cons of Setting Up InvITs
InvITs offer numerous advantages for sponsors (infrastructure developers), including a convenient way to monetize revenue-generating assets, unlock equity gains, and deleverage their balance sheets, i.e., reduce debts. Furthermore, InvITs present a more tax-friendly structure. As a trust, all income received by the InvIT from underlying assets is treated with a pass-through treatment and is not taxable at the InvIT level.
For investors such as banks, financial institutions, pension funds, insurance companies, and retail investors, InvITs provide a low-risk investment opportunity. However, on the downside, InvITs remain susceptible to changes in regulatory and tax law. In India, infrastructure assets are not inflation-linked, hence a high rate of inflation can significantly impact the performance of InvITs.
