Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AAA/Stable' corporate credit rating on Powergrid Infrastructure Investment Trust (PGInvIT).

 

The InvIT has acquired 26% stake in four special-purpose vehicles (SPVs) - POWERGRID KalaAmb Transmission Ltd, POWERGRID Jabalpur Transmission Ltd, POWERGRID Warora Transmission Ltd and POWERGRID Parli Transmission Ltd, from Power Grid Corporation of India Ltd (PGCIL; 'Crisil AAA/Stable/Crisil A1+') on December 30, 2024, for a consideration of Rs 506.63 crore. The acquisition was funded through additional debt of Rs 506 crore raised at the InvIT level. With this acquisition, PGInvIT holds 100% stake in all five assets (including Vizag Transmission Ltd).

 

PGInvIT acquired five operational transmission SPVs from PGCIL in fiscal 2022. The assets have an operational track record of over six years with healthy transmission system availability above the normative level of 98%. Collection efficiency was 101% for the first six months of fiscal 2025 as all SPVs are interstate transmission system (ISTS) licensees, falling under the point of connection pool mechanism.

 

The reaffirmation reflects the stable revenue profile of the trust, with all underlying transmission SPVs operating under the Central Electricity Regulatory Commission (CERC) Sharing of Inter-State Transmission Charges and Losses Regulations, 2020. This, along with their healthy track record of maintaining line availability higher than the normative level and remaining life of ~28-year under transmission service agreements (TSAs), ensures steady cash flow. The rating also reflects the strong financial risk profile of the InvIT.

 

The financial risk profile is supported by low leverage, with debt of Rs 567.73 crore as on September 30, 2024, and ratio of net debt to assets under management (AUM) of -0.13%. Post debt-funded acquisition of 26% stake in the four SPVs, ratio of net debt/AUM will increase to around 6%, against 70% cap prescribed by the Securities Exchange Board of India for InvITs that are rated 'AAA' and have made at least six continuous distributions. This provides sufficient headroom for debt-funded acquisitions. Additionally, the long debt tenure (till fiscal 2041) leads to a comfortable debt service coverage ratio (DSCR).

 

The rating also factors in the strength of the sponsor, PGCIL, which has extensive experience in the power transmission business, and Powergrid Unchahar Transmission Ltd (PUTL; a wholly owned subsidiary of PGCIL), the investment manager.

 

The strengths are partially offset by exposure to operations and maintenance (O&M) risk for the underlying transmission assets.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of PGInvIT and the SPVs, as the InvIT has direct control over the SPVs. Furthermore, the SPVs will have to mandatorily dispense 90% of their net distributable cash flow (after meeting debt obligation) to the InvIT, leading to a highly fungible cash flow. Also, as per extant regulations, the cap on borrowing of an InvIT has been defined at the consolidated level, at 70%[1] of the value of the InvIT’s assets.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

[1]PGInvIT has made 13 continuous dividend distributions and is a ‘AAA’ rated entity.

Key Rating Drivers & Detailed Description

Strengths:

• Stable revenue of underlying operational assets: The five SPVs have stable operations with a track record of above-normative transmission line availability from declaration of commercial operations. Revenue stability of SPVs is driven by their TSAs, which ensure payment of stipulated tariff, subject to achievement of normative line availability of 98%.

 

Revenue of a transmission SPV is completely delinked from the power demand-supply situation and volatility in electricity prices. Moreover, factors affecting line availability - such as unchecked vegetation growth, lightning or highly ambient temperature, causing wear and tear of insulators and leading to flashovers - are routine, do not involve significant cost and can be easily rectified, thereby minimising outage time. Any outage caused by extreme weather conditions, cyclones, lightning, fire and explosion, geological surprises etc.  is usually classified as an 'act of God', does not impact availability and is covered under the force majeure of CERC (Terms and Conditions of Tariff) Regulations, 2024.

 

• Cash flow stability under the CERC regulations: All SPVs are ISTS licensees and come under the ambit of Sharing of Inter-State Transmission Charges and Losses Regulations, 2020, wherein Central Transmission Utility of India Ltd (CTUIL) collects monthly transmission charges from all designated ISTS customers on behalf of the licensees. All ISTS licensees are then paid their share of transmission charges from the centrally collected pool. This method mitigates counterparty risk as the risk of default or delay by a particular customer is distributed among all ISTS licensees in proportion to their share. The CTUIL has a track record of maintaining strong collection efficiency. The SPVs will continue to benefit from the strong collection efficiency of CTUIL and diversification of counterparty risk under the pool mechanism.

 

• Strong financial risk profile: PGInvIT is likely to have strong and stable cash flow, given the long-term TSAs of its underlying SPVs and strong collection efficiency. The trust raised debt of around Rs 575 crore in fiscal 2022, to acquire the remaining 26% stake in one of the SPVs, Vizag Transmission Ltd, and for funding PPTL, PWTL and PJTL, to acquire rights to additional revenue from PGCIL under change in law. Further, the trust raised Rs 506 crore in December 2024 towards acquisition of the remaining 26% stake in four SPVs, POWERGRID KalaAmb Transmission Ltd, POWERGRID Jabalpur Transmission Ltd, POWERGRID Warora Transmission Ltd and POWERGRID Parli Transmission Ltd. Sizeable and stable cash accrual should support the healthy DSCR over the medium term. The trust is likely to rely largely on debt to acquire assets in future, due to low leverage at present. However, overall borrowings will remain restricted to the SEBI prescribed debt cap of 70% of AUM.

 

Future acquisitions and their impact on the financial risk profile of the trust will be monitorable.

 

Weakness:

• Exposure to O&M risk for SPVs: Maintaining high availability of transmission system is critical to ensure stability of revenue in the power transmission sector. Although O&M expense forms a small portion of revenue, improper maintenance may lead to revenue loss and weaken the loan repayment capability of SPVs. However, these risks are mitigated by low technical complexity, the routine nature of O&M activity, and appointment of PGCIL as the O&M agency by the SPVs. Furthermore, as the sponsor, PGCIL is obliged as the sponsor to own 15% units in the InvIT for three years, which ensures its continued interest in PGInvIT.

Liquidity: Superior

Stable revenue profile will lead to strong cash accrual to support debt servicing in fiscal 2025. Liquidity is also backed by healthy cash balance of around Rs 198 crore as on September 30, 2024. The management maintains a prudent approach in maintaining adequate liquidity buffer in the form of a debt service reserve account of three months.

Outlook: Stable

Crisil Ratings believes PGInvIT will generate stable cash flow, backed by ability of its transmission assets to maintain the stipulated line availability and implementation of the pool mechanism for billing and collection.

Rating sensitivity factors

Downward factors:

• Line availability falling below 98% on a sustained basis, thereby weakening cash flow
• Delay in collection under the Sharing of Inter-State Transmission Charges and Losses Regulations, 2020
• Debt-funded acquisitions significantly affecting capital structure and DSCR

About the Trust

PGInvIT is an irrevocable trust pursuant to the trust deed under the provisions of the Indian Trusts Act, 1882. It was registered with SEBI as an InvIT on January 7, 2021, under Regulation 3(1) of the InvIT Regulations.

 

It is sponsored by PGCIL. Its units are listed on the National Stock Exchange and Bombay Stock Exchange. Post the initial public offering of PGInvIT, PGCIL holds 15% stake in the InvIT. All decisions pertaining to acquisition, divestment or enhancement of assets will be taken by the investment manager, PUTL.

 

The underlying assets of the trust include five ISTS projects implemented under the Tariff Based Competitive Bidding (TBCB) mechanism.

SPV	About the project
Vizag Transmission Ltd (formerly, POWERGRID Vizag Transmission Ltd)	Project involves establishment of two transmission lines of 956.84 ckm across Telangana and Andhra Pradesh It was commissioned in February 2017
POWERGRID KalaAmb Transmission Ltd	Project involves setting up of one transmission line (LILO) of 2.47 ckm and one substation in Himachal Pradesh under TBCB. Project was commissioned in July 2017. PKATL has been allotted a project “implementation of one number 125 MVAR, 420 KV bus reactor” at Kala Amb substation. The project commissioned in February 2024.
POWERGRID Jabalpur Transmission Ltd	Project involves establishment of one transmission line of 745.05 ckm in Madhya Pradesh. It was commissioned in January 2019
POWERGRID Warora Transmission Ltd	Project involves establishment of four transmission lines of 1,028.11 ckm across Madhya Pradesh and Maharashtra and one substation in Maharashtra. It was commissioned in July 2018
POWERGRID Parli Transmission Ltd	Project involves establishment of one substation and three transmission lines of 966.12 ckm in Maharashtra It was commissioned in June 2018. CUTIL has nominated PPTL line bay at 765/400 KV parli (new) Substation for RE interconnection under RTM with a complition target of December 31st 2025.

 

About the Sponsor

PGCIL was incorporated in 1989. The company moves large blocks of power from central generating agencies and areas that have surplus power to load centers within and across regions. It is under the administrative control of the Ministry of Power, Government of India. PGCIL owns and operates an extensive and nationwide network of transmission lines, which mainly comprises 765 kV and 400-kV transmission lines and substation assets and high-voltage direct current (HVDC) transmission systems.

Key Financial Indicators

Particulars	Unit	FY24	FY23
Revenue	Rs crore	1302.7	1315.3
Profit after tax (PAT)	Rs crore	981.7	(446.4)*
PAT margin	%	75.35%	-
Adjusted debt/adjusted networth	Times	0.07	0.07
Interest coverage	Times	24.87	28.89

*Due to higher Impairment of Property Plant and Equipment & Intangible Assets.

Any other information: Not Applicable