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PowerGrid Infrastructure Investment Trust

  • 27 Apr 2021
  • 4 min read

Why in News

The Power Grid Corporation of India (PGCIL) launched its Infrastructure Investment Trust (InvIT) - PowerGrid Infrastructure Investment Trust (PGInvIT).

Key Points

  • About PGInvIT:
    • This is the first time a state-owned entity (PGCIL) is monetizing its infrastructure assets through the InvIT route.
    • This will be only the third InvIT to be listed in the Indian markets, after IRB InvIT and India Grid Trust, both of which went public in 2017.
    • The InvIT route was proposed by the Centre as an alternative fundraising route for state-run companies to manage funding requirements without having to depend on government support.

Power Grid

  • It is a public limited company under the administrative control of the Ministry of Power.
  • It is the largest power transmission company in India.
  • It started its commercial operation in the year 1992-93 and is today, a Maharatna company.
  • About Infrastructure Investment Trust (InvIT):
    • It is a collective investment scheme similar to a mutual fund, which enables direct investment of money from individual and institutional investors in infrastructure projects to earn a small portion of the income as return.
    • InvITs can be treated as the modified version of REITs (real estate investment trusts) designed to suit the specific circumstances of the infrastructure sector.
    • It is created to hold income-generating and operational infrastructure assets such as roads, power transmission lines, gas pipelines, etc.
      • These assets have long-term contracts with strong counterparties that provide a steady cash flow over the long term – typically 15-20 years.
    • The InvITs are regulated by the SEBI (Infrastructure Investment Trusts) Regulations, 2014.
    • An InvIT consists of four elements:
      • Trustee has the responsibility of inspecting the performance of an InvIT.
      • Sponsor(s) are promoters of the company that set up the InvIT.
      • Investment Manager is entrusted with the task of supervising the assets and investments of the InvIT.
      • Project Manager is responsible for the execution of the project.
    • Units of InvITs can be listed and traded on a stock exchange, providing them liquidity.
      • Or they can be private and unlisted, in which case they are not publicly traded and largely invested in by institutional investors.
  • Advantages of Setting up InvITs:
    • For sponsors (infrastructure developers), InvITs provide a convenient route to monetize revenue-generating assets, unlock equity gains, and deleverage their balance sheets (i.e. to reduce debts).
    • InvITs also present a more tax-friendly structure. Being a trust, all income received by the InvIT from underlying assets receives a pass-through treatment and is not taxable at the InvIT level.
    • For investors such as banks, financial institutions, pension funds, insurance companies, and even retail investors, InvITs provide a good low-risk investment opportunity.
  • Disadvantages of InvITs:
    • InvITs are sensitive to changes in regulatory and tax law.
    • Infrastructure assets are not inflation-linked in India.
      • A high rate of inflation has a significant impact on the performance of InvITs.

Source:BS

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