| POWERGRID Infrastructure Investment Trust | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 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 (POWERGRID InvIT).
POWERGRID InvIT is sponsored by Power Grid Corporation of India Ltd (PGCIL; ‘CRISIL AAA/Stable/CRISIL A1+’). PGCIL has divested five of its operational tariff-based competitive bidding assets to the InvIT. The trust has been registered with the Securities and Exchange Board of India (SEBI) and its units have been listed on the National Stock Exchange and the Bombay Stock Exchange in May 2021. PGCIL holds 15% stake in the InvIT, while public unitholders hold the remaining. The proceeds from the listing were used to acquire the assets and repay the existing debt.
The InvIT has acquired 74% stake in five PGCIL special purpose vehicles (SPVs) by utilising the listing proceeds. It has also acquired 26% in one SPV, Vizag Transmission Ltd. The remaining 26% in other four SPVs will be acquired upon expiry of the lock-in clause in the SPVs’ transmission service agreements (TSAs). POWERGRID Unchahar Transmission Ltd (PUTL; a wholly owned subsidiary of PGCIL) will act as the InvIT’s investment manager.
The rating reflects the trust's expected stable revenue profile, with all the underlying transmission SPVs to be acquired operating under the Central Electricity Regulatory Commission (CERC), Sharing of Inter-State Transmission Charges and Losses Regulations, 2020. This, along with the SPVs' healthy track record of maintaining line availability higher than normative levels and ~29-year TSAs remaining, ensures steady cash flow. The rating also reflects the InvIT’s strong financial risk profile. These 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 the 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 a consolidated level equivalent to 70%[1] of the value of the InvIT 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 6 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%.
All SPVs are interstate transmission system (ISTS) licensees and come under the Sharing of Inter-State Transmission Charges and Losses Regulations, 2020 wherein the central transmission utility, 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., CTU has a track record of maintaining strong collection efficiency. The SPVs will continue to benefit from the strong collection efficiency of CTU and diversification of counterparty risk under the pool mechanism.
One SPV acquired by the trust i.e., POWERGRID KalaAmb Transmission Ltd receives 85% of its revenue directly from Himachal Pradesh State Electricity Board. However, the collection efficiency of this asset has been healthy.
Strong financial risk profile The trust will likely have strong, stable cash flow, given the long-term TSAs of its underlying SPVs and strong collection efficiency. PGInvIT utilised its listing proceeds to repay all the debt in the SPVs in FY22. The trust has also raised approx. Rs. 575 crores debt during FY23 to acquire 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 revenues under change in law from PGCIL. The trust will majorly rely on borrowings to acquire assets in the future. However, overall borrowings would remain restricted to SEBI’s prescribed debt cap of 70% of assets under management (AUM). The Trust has already made six continuous dividend distributions and is a AAA’ credit rated entity.
Future acquisitions by POWERGRID InvIT and their impact on its financial risk profile will be key monitorable.
Weakness: O&M risks for SPVs Maintenance of 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 SPVs' loan repayment capability. However, these risks are mitigated by low technical complexity and routine O&M activity, and appointment of PGCIL as O&M agency by the SPVs. Furthermore, PGCIL’s obligation as sponsor to own 15% units in InvIT for a period of 3 years also ensures continued interest in the Trust. |
Liquidity: Superior Stable revenue profile is expected to lead to strong cash accruals comfortable to support debt servicing during fiscal 2024. Liquidity is also supported by healthy cash balance of around Rs 499.5 crores as on 31st March 2023. The management is exercising prudence in terms of maintaining adequate liquidity buffer in the form of a debt service reserve account of 3 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
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About the Trust POWERGRID InvIT 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 NSE and BSE. Post the Initial Public Offering of PGInvIT, PGCIL holds 15% stake in the InvIT. All decisions pertaining to acquisition, divestment or enhancement of POWERGRID InvIT’s assets will be taken by the investment manager, PUTL.
The underlying assets of the Trust presently include five inter-State Transmission System (ISTS) projects implemented under the Tariff Based Competitive Bidding (TBCB) mechanism.
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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 & substation assets and HVDC transmission systems. |
Key Financial Indicators of PGInvIT on consolidated basis
*Due to higher Impairment of Investments in Subsidiaries |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Criteria Details
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