Rating Rationale
May 16, 2024 | Mumbai
POWERGRID Infrastructure Investment Trust
Rating reaffirmed at 'CRISIL AAA/Stable'
 
Rating Action
Corporate Credit RatingCRISIL AAA/Stable (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

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

 

The reaffirmation reflects the trust's stable revenue profile, with all the underlying transmission special purpose vehicles (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 ~28-year transmission service agreements (TSAs), ensures steady cash flow. The rating also reflects the strong financial risk profile of the infrastructure investment trust (InvIT).

 

The rating factors in the strength of the sponsor, Power Grid Corporation of India Ltd (PGCIL; ‘CRISIL AAA/Stable/CRISIL A1+’), which has extensive experience in the power transmission business, and Powergrid Unchahar Transmission Ltd (PUTL; a wholly owned subsidiary of PGCIL), the investment manager.

 

PGInvIT has five operational transmission SPVs acquired from PGCIL in fiscal 2022. The assets have an operational track record of over six years with healthy transmission system availability above the normative 98%. Collection efficiency for the first nine months of fiscal 2024 was 97.6% as all SPVs are interstate transmission system (ISTS) licensees and come under the point of connection pool mechanism.

 

The financial risk profile is supported by low leverage with debt of Rs 570.6 crore as on 31st December 2024, and ratio of net debt to assets under management (AUM) of 1.22% as on September 30, 2023, against 70% cap prescribed by SEBI 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 2038) leads to a comfortable debt service coverage ratio (DSCR).

 

The trust has 74% stake in four of the SPVs and 100% stake in one SPV, Vizag Transmission Ltd. The trust became eligible to acquire the remaining 26% in the other four SPVs in fiscal 2024 on expiry of the lock-in clause in their TSAs. CRISIL Ratings estimates that even with debt-funded acquisition of the remaining 26% stake in the four SPVs, the DSCR will remain healthy.

 

The strengths are partially offset by operations and maintenance (O&M) risks 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 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 10 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 of over three years. Revenue stability of the 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 high ambient temperature causing wear and tear of insulators leading to flashovers- are routine, do not involve significant cost and are easily rectifiable, thereby minimising outage time. Furthermore, any outage on account of extreme weather conditions, cyclones, lightning, fire and explosion, geological surprises etc.  is usually classified as an 'act of God', does not impact line 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 risks 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 will likely have strong, stable cash flow, given the long-term TSAs of its underlying SPVs and strong collection efficiency. The trust utilised its listing proceeds to repay all the debt in the SPVs in fiscal 2022. The trust raised debt of ~Rs 575 crore in fiscal 2022 to acquire the remaining 26% stake in one of the SPV, Vizag Transmission Ltd, and for funding PPTL, PWTL and PJTL to enable them to acquire the rights to additional revenue from PGCIL under change in law. The trust will rely largely on borrowings to acquire assets. However, overall borrowings will remain restricted to the SEBI prescribed debt cap of 70% of AUM (given that PGInvIT has already made 10 continuous dividend distributions and is a ‘AAA’ credit rated entity).

 

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

 

Weakness:

  • O&M risk for SPVs: Maintaining high line availability is critical to ensure stability of revenue in the power transmission sector. Although the O&M expense forms a small portion of the revenue, improper line maintenance may lead to revenue loss and weaken the loan repayment capability of the SPVs. However, these risks are mitigated by low technical complexity and the routine nature of O&M activity, and the appointment of PGCIL as the O&M agency by the SPVs. Furthermore, 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 supported by healthy cash balance of around Rs 484 crore as on December 31, 2023. The management is exercising prudence in terms of 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 the 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, and 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.
  • It was commissioned in July 2017

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

About the Sponsor

PGCIL was incorporated in 1989. The company moves large blocks of power from the central generating agencies and areas that have surplus power to load centres 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

FY23

FY22

Revenue

Rs.Crore

1315.3

1243.4

Profit After Tax (PAT)

Rs.Crore

(446.4)*

463.3

PAT Margin

%

-

37.2%

Adjusted debt/adjusted networth

Times

0.072

0.060

Interest coverage

Times

28.89

NA

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

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs.Crore)		 Complexity
Level		 Rating assigned
with outlook
NA NA NA NA NA NA NA NA

Annexure - List of Entities Consolidated

Name of entities

Extent of consolidation

Rationale for consolidation

Vizag Transmission Ltd

Full

Strong managerial, operational and financial linkages

POWERGRID KalaAmb Transmission Ltd

Full

Strong managerial, operational and financial linkages

POWERGRID Jabalpur Transmission Ltd

Full

Strong managerial, operational and financial linkages

POWERGRID Warora Transmission Ltd

Full

Strong managerial, operational and financial linkages

POWERGRID Parli Transmission Ltd

Full

Strong managerial, operational and financial linkages
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Corporate Credit Rating LT 0.0 CRISIL AAA/Stable   -- 31-05-23 CRISIL AAA/Stable 12-12-22 CRISIL AAA/Stable 08-06-21 CCR AAA/Stable --
      --   --   -- 03-06-22 CCR AAA/Stable 18-01-21 Provisional CCR AAA/Stable --
All amounts are in Rs.Cr.
Criteria Details
Links to related criteria
Criteria for Rating power transmission projects
CRISILs rating criteria for REITs and InVITs
The Infrastructure Sector Its Unique Rating Drivers
Criteria for rating entities belonging to homogenous groups

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