A motorcyclist and cyclist ride along a highway under power lines hanging from transmission towers. (Photographer: Udit Kulshrestha/Bloomberg) 

Sterlite Power Launches Rs 2,250-Crore IPO For Its InvIT

Sterlite Power Grid Ventures Ltd. will become the first power sector company and the second infrastructure player to launch the initial public offering of its infrastructure investment trust (InvIT) on Wednesday. Its Indigrid InvIT Fund is looking to raise Rs 2,250 crore through the offer which closes on Saturday.

Earlier this month, IRB Infrastructure Developers Ltd. became the first infrastructure company to launch an IPO. Its up to Rs 5,040-crore InvIT issue had received an overwhelming response.

Here’s all you need to know about Sterlite Power’s InvIT…

Sterlite Power Launches Rs 2,250-Crore IPO For Its InvIT

How Will The Funds Be Used

The company, also the sponsor for the InvIT, will use 60 percent, or Rs 1,600 crore, of the proceeds to repay part of its external debt of Rs 2,600 crore in the two transmission projects housed under the trust. The promoter would get Rs 650 crore to repay part of its around Rs 900-crore debt.

Pooled-In Projects

Of the 11 inter-state power transmission projects owned by the sponsor, the InvIT would initially have two operational transmission lines, both with a residual life of 32 years. The two projects – Bhopal Dhule Transmission Company Ltd. and Jabalpur Transmission Company Ltd – have been built under the tariff-based competitive bidding route.

The IndiGrid Trust‘s cash flow from operations is projected to decline to Rs 373.37 crore in 2019-20 compared to Rs 417.20 crore in 2017-18 due to a decline in cash flow from its Jabalpur unit.

Sterlite Power Launches Rs 2,250-Crore IPO For Its InvIT

Sterlite Power will transfer another three inter-state power transmission projects over the next two years, said Pratik Agarwal, chief executive officer of Sterlite Infraventures Ltd., in an interview to BloombergQuint.

The InvIT has a ‘right of first offer’ to acquire eight of the nine remaining sponsor projects. The eight transmission lines have approximately 1,936 circuit length (kms) and two substations having 6,000 megawatt (MW) of transformation capacity across four states.

Transmission assets have a relatively low risk and stable business model as compared to some of the other infrastructure assets. Not only are the cash flows more certain as they are based on tariffs bid. Strong collection efficiency of central transmission utility Power Grid Corporation of India Ltd. ensures comfort in receiving payments. 
Alok Deora, AVP- Research, IIFL Wealth Management

Addition of more operational assets during the next few quarters to the trust will be value accretive to unit holders, he said.

Key Highlights

  • Institutions can acquire up to 75 percent of the units on offer while the rest have been set aside for non-institutional investors.
  • Price Band is in the range of Rs 98-100
  • Minimum lot size is 10,205 units and then in multiples of 5103 units.
  • The minimum application stands at Rs 10,20,500 at the upper band.
  • Morgan Stanley India Company Pvt. Ltd., Citigroup Global Markets India Pvt. Ltd. and Edelweiss Financial Services Ltd. are the lead managers for the issue.

Returns For Shareholders

The initial InvIT structure will provide an internal rate of return (IRR) of around 8 percent, according to a report by Antique Stock Broking. The cash yield in the initial three years would be higher around 10.8-11 percent and would reduce gradually as the assets mature, the report said.

If the trust is able to acquire other assets of the sponsor, at an IRR of 9-9.5 percent, the return could increase to approximately 8.5 percent.

Stable cash flows from assets and a strong pipeline of assets provides future growth opportunity. The trust will reward unit holders with at least 90 percent of distributable cash.