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).
- 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.
- 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.