In a major reform, the Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, has approved monetisation of assets of Powergrid Grid Corp. of India Ltd (POWERGRID), a public sector undertaking (PSU) under the Ministry of Power, through Infrastructure Investment Trust (InvIT) model.
This is the first time any PSU in the power sector will undertake asset recycling by monetising its assets through the InvIT model and using the proceeds to fund the new and under-construction capital projects. The approval would help POWERGRID to monetise in the first lot, assets with gross block value of more than Rs 70 billion. These assets, which are mainly high voltage transmission lines and substations, are held by POWERGRID in form of special purpose vehicles (SPVs).
The proceeds from the asset monetisation would be deployed by POWERGRID in their new and under-construction projects.
The asset monetisation through InvIT by POWERGRID is a first for the power sector PSU. The proceeds from the asset monetisation would be utilized by POWERGRID for its Capex and the premium generated would augment the company’s net worth.
In the first block, POWERGRID would monetise assets with gross block of more than Rs 70 billion. Based on the experience gained, further monetisation shall be carried out in future.
Asset recycling is a key strategy of the Govt of India to release the capital invested in operational assets and the proposed InvIT of POWERGRID would attract both domestic as well as global investors including sovereign wealth funds (SWFs). Sale of assets to InvITs is a way of accessing long term, relatively cheap finance required to fund infrastructure projects in the transmission sector. The Capex plan of POWERGRID for next two years (2020-21 and 2021-22) is Rs 205 billion. The government has enacted an enabling regulatory and taxation framework for InvITs and the proposed InvIT by POWERGRID would deepen this market.
The InvIT would provide an opportunity to the general public and institutional investors such as pension and mutual funds to benefit from this investment opportunity and participate in the growth of Indian infrastructure sector.