The Ministry of Power (MoP) announced that the Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, has approved the asset monetization of the Power Grid Corporation of India Limited (PGCIL) through the Infrastructure Investment Trust (InvIT) model.
The financial instrument I’nvIT’ was launched as a part of a brownfield asset monetization strategy to enhance infrastructure investments, which would provide an opening for the general public and institutional investors to invest in the infrastructure sector.
The InvIT model has been designed in a way that’s similar to mutual funds. In this, small sums of investor’s money are pooled together to invest in a project. This provides a steady cash flow over a period of time, a part of which goes back to the investors in the form of dividends.
According to the press release, PGCIL, a state-owned power transmission company, will be the first public sector undertaking (PSU) in the power sector to undertake asset recycling through the monetization of its assets by the InvIT model. The company plans to utilize the proceeds from asset monetization for its new and under-construction projects as well as capital expenditure.
The approval will facilitate PGCIL to monetize its assets that are held in the form of special purpose vehicles (SPVs) like high voltage transmission lines and substations. The company is expected to monetize assets with a gross block worth over ₹70 billion (~$ 950.86 million) in the first lot. It also has a capital expenditure plan of ₹205 billion (~$2.78 billion) for the next two years.
“Asset recycling is a key strategy of the government of India to release the capital invested in operational assets, and the proposed InvIT of the PGCIL would attract both domestic as well as global investors including sovereign wealth funds. Sale of assets to InvITs is a way of accessing long-term, relatively cheap finance required for infrastructure projects in the transmission sector,” said the government’s press statement.
Mercom earlier reported that the PowerGrid Corporation of India Limited had announced its plans to separate its power transmission business to form a 100% subsidiary that would carry out transmission-related functions, as per the Ministry of Power’s directions. The newly formed subsidiary would have separate accounting and board structures.
In July 2020, Tata Power announced that its board of directors had given its in-principle approval for setting up an InvIT for the company’s renewable business. This was part of the company’s long-term strategic plan to reduce debt, strengthen its balance sheets, and improve overall return metrics.