POWER GRID CORPORATION OF INDIA (PGCIL)

ChinmayaIAS Academy - Current Affairs April 27, 2021 GS, GS3 Leave a comment 357 Views

The Power Grid Corporation of India (PGCIL) launched its Infrastructure Investment Trust (InvIT) – PowerGrid Infrastructure Investment Trust (PGInvIT).

Important points:

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.

Power Grid

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.

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.

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 :

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