Making of Country's First Power Sector Infrastructure Investment Trust (InvIT)
IndiGrid is the first Infrastructure Investment Trust established to own power transmission assets in India and was formed in 2016 with one key goal in mind – “Democratization of power” in India.
Mr. Harsh Shah, Chief Executive Officer and Whole-time Director, IndiGrid
Over INR 700 Billion of AUM has been garnered by 5 InvITs and 1 REIT across Indian infrastructure and real-estate assets since 2017. InvIT guidelines were issued by SEBI in 2014 with an objective of mobilizing capital for operating infrastructure assets in India and releasing capital for future investments. With robust regulations and tremendous investor interest in owning well governed, operating infrastructure assets, InvIT has emerged as a game changer for the infrastructure sector in India.
We believe that access to reliable power is a fundamental right as it is the lifeline of human productivity and ingenuity. Imbibing the spirit of the world’s largest democracy, we strive to provide an inclusive ownership of the nation’s power infrastructure to a wider investor base, while ensuring a strong and robust corporate governance as the foundation framework for this unique platform. IndiGrid owns 18 transmission lines of 4,900 ckms and 4 substations of 7,735 MVA capacity across 11 states in India with residual contract life of ~ 32 years. Owing to a monopolistic nature of transmission assets and strong contractual framework, they offer stable and predictable yield with no price or volume risk. IndiGrid is rated AAA by CRISIL, India ratings and ICRA.
Since our listing in June 2017 with two transmission assets, maintaining stable distribution and growth amidst volatility has been our key focus. We have acquired six more operational transmission assets over last 18 months and expanded the portfolio size almost three times, from INR 38 Billion to INR 111 Billion. We have also secured an additional asset pipeline of INR 75 Billion which provides a strong visibility for future growth. We provided guidance of INR 11/Unit during the initial public offer. Backed by the accretive acquisitions, we have increased the DPU by ~9% in two years to INR 12/Unit. It has been ten straight quarters of distribution, aggregating to a total of INR 27.56 per unit to its unitholders, making IndiGrid one of the most attractive yield platforms in India.
With a focus on acquiring stable operating assets, long tenure contracts, and quarterly distribution, IndiGrid has delivered superior risk-adjusted returns on a Total Return basis ( = distribution + price change) while displaying a Beta of just 0.07.
Compared to global business trust and yield platforms, which on an average are trading at a spread differential range of 2.5%-4.5% with their respective 10-year local yields, IndiGrid is attractively placed at a spread differential
of ~5.5%. This has attracted a diverse set of investors. Foreign Institutional Investors holding is at 56%, of which marquee investors KKR and GIC own 43%. KKR, who also owns majority of the Investment Manager of IndiGrid, has also agreed to acquire another 15% stake in IndiGrid from Sterlite Power, the initial sponsor. DIIs also own a substantial portion (~16%) with Life insurance companies, family offices and mutual funds taking the lead.
A substantial amount of credit goes to SEBI and Ministry of Finance as well who have not only put together robust regulations focused on Investor interest, but have been agile to amend the initial policies with suggestions from key stakeholders. Owing to the initial success of InvITs like IndiGrid and robust regulations, several InvITs have been launched that are backed by marquee global investors across assets classes like roads, telecom towers as well as gas pipelines.
What has worked well for us? We, at IndiGrid, pride ourselves on our robust corporate governance practices and high degree of transparency. InvITs predominantly own operating assets, insulating them from some of the infrastructure key risks, including financial closure, regulatory approvals, and time and cost overruns. As they are required to distribute a minimum of 90% of cash earnings to investors, it provides a stable and predictable yield. Through robust corporate governance measures such as managing InvITs via an independent trustee and investment managers, SEBI has proactively safeguarded stakeholder interest.
Going forward, our outlook continues to be optimistic. With KKR bringing in global investment management expertise to the Investment Manager as it majority shareholder and Sterlite Power bringing in technical and operating expertise as a Project Manager, it is a win-win scenario for our unitholders. At our end, we will continue to ensure robust risk management mechanisms and high standards of performance delivery, which have accounted for our success so far. With a strong pipeline visibility up to 11 assets and an AUM of INR 180 Billion over the next two years considering only the sponsor assets, IndiGrid is on course to achieve its mission of INR 300 Billion AUM by 2022. Apart from the sponsor assets, there is a very dynamic market for third-party assets worth INR 330 Billion along with a robust bidding pipeline, which we will continue to evaluate for accretive acquisitions as and when operational.
IndiGrid was established upon solid fundamentals of transparency, governance and providing superior risk- adjusted returns to unitholders. These fundamental building blocks were further cemented by attracting investment from KKR, GIC and locking in growth pipeline for next 2 years through framework assets. These are the parameters on which we have concentrated through the last 10 quarters and we are very happy to say that incrementally we have made substantial progress on regulations, on commitments, on acquisitions, on distributions and a track record of ten quarters for distributions. We believe continued and equal focus on these three guiding factors will help us differentiate the platform from others.
As per ICRA estimates (basis GoI manifesto), the capital investment in the infrastructure sector has been proposed at INR 100 trillion over the next five years. With the Indian economy and population both set to grow at impressive rates in the coming decades, it is imperative to ensure effective and timely roll out of infrastructure and the reforms that go with it. We at IndiGrid, remain sensitive to the nation’s immense demand for energy infrastructure and are ever committed to play our part as a catalyst to spearhead India into a USD 5 trillion economy.
About the author
Mr. Harsh Shah
Chief Executive Officer and Whole-time Director
Mr. Harsh Shah has extensive experience in debt and equity financing for infrastructure assets, M&A, operations, regulatory and macroeconomic policy issues with a focus on the infrastructure sector. He has been instrumental in building India’s first power sector InvIT, IndiGrid from concept to US $ 1.5 Bn listed platform working with regulators, investors and developers. Mr. Shah also serves as a member of the SEBI Advisory Committee for InvITs and REITs. He is a Member of the financial markets committee at CII and he also leads the working group on InvITs and REITs. Previously, Mr. Shah served as the Chief Financial Officer at Sterlite Power Transmission Limited. Prior to joining Sterlite, he has worked with Larsen & Toubro Limited, L&T Infrastructure Finance Company Limited and Procter & Gamble International Operations Pte. Limited.
Mr. Shah holds a master’s degree in Business Administration from the National University of Singapore and a bachelor’s degree in Electrical Engineering from the Nirma Institute of Technology, Gujarat University.