Monetization of subsidiaries of Power Grid Corporation of India
The Cabinet Committee on Economic Affairs has approved Asset Monetization of subsidiaries of Power Grid Corporation of India Limited- POWERGRID through Infrastructure Investment Trust.
• POWERGRID is a public limited company under the administrative control of the Ministry of Power, Government of India, started its commercial operation in the year 1992-93 and is today, a Maharatna company, engaged in the business of power transmission.
• The Company, along with its wholly owned subsidiaries acquired through the Tariff Based Competitive Bidding (TBCB) process, owns and operates a pan India transmission network.
• The Company meets its fund requirement for its Capital Expenditure (CAPEX) through its internal accruals and debt.
• The Budget 2019-20 emphasized investment led growth and indicated that new and innovative financial instruments including Infrastructure Investment Trusts (lnvITs), have been launched as part of the brown field asset monetization strategy for augmenting infrastructure investment.
• The Cabinet Committee on Economic Affairs has accorded approval to the POWERGRID to monetise transmission assets held in SPVs through InvIT model.
Infrastructure Investment Trusts (InvITs)
InvITs is like a mutual fund, which enables direct investment of small amounts of money from possible individual/institutional investors in infrastructure to earn a small portion of the income as return.
InvITs work like mutual funds or real estate investment trusts (REITs) in features.
InvITs can be treated as the modified version of REITs designed to suit the specific circumstances of the infrastructure sector.
SEBI notified the SEBI (Infrastructure Investment Trusts) Regulations, 2014 on September 26, 2014, providing for registration and regulation of InvITs in India. The objective of InvITs is to facilitate investment in the infrastructure sector.
This is the first time any PSU in the power sector will undertake asset recycling by monetising its assets through the InvIT model and using the proceeds to fund the new and under-construction capital projects.
This approval would help the PGCIL to monetise in the first lot, assets with gross block value of more than Rs 7,000 crore.
These assets, which are mainly high voltage transmission lines and substations, are held by POWERGRID in form of special purpose vehicles (SPVs).
The proceeds from the asset monetisation would be deployed by POWERGRID in their new and under-construction projects.
The PGCIL, a public limited company under the administrative control of the Ministry of Power, is engaged in the business of power transmission.
The company, along with its wholly-owned subsidiaries acquired through the Tariff Based Competitive Bidding (TBCB) process, owns and operates a pan India transmission network.
Based on the experience gained, further monetisation shall be carried out in future, the statement said.
Asset recycling is a key strategy of the Government of India to release the capital invested in operational assets and the proposed InvIT of the PGCIL would attract both domestic as well as global investors including Sovereign Wealth Funds.
Sale of assets to InvITs is a way of accessing long term, relatively cheap finance required to fund infrastructure projects in the transmission sector.
The capital expenditure plan of Power Grid for 2020-21 and 2021-22 is Rs 20,500 crore.
The Government of India has enacted an enabling regulatory and taxation framework for InvITs and the proposed InvIT by PGCIL would deepen this market.
The InvIT would provide an opportunity to the general public and institutional investors such as Pension Funds, Mutual Funds, to benefit from this investment opportunity and -participate in the growth of Indian Infrastructure Sector.