IndiGrid has raised $800M in total. We talked with Harsh Shah, its CEO.
How would you describe IndiGrid in a single tweet?
IndiGrid, backed by KKR and GIC, is India’s first yield platform in power sector offering investors an attractive cash yield of ~13% backed by AAA rated stable cash flows from long-term operating transmission assets, with AUM of INR 107 Billion.
How did it all start and why?
To achieve the GDP of USD 5 trillion by 2024-25, India needs to spend about USD 1.4 trillion over the next five years on infrastructure. Banks and non-bank lenders, already battling asset-liability mismatches and bad loans, should not be relied upon for this investment.
Meanwhile, infrastructure developers need to monetize their operational assets efficiently and churn the capital into under-construction assets. This is where, in 2014, the Securities and Exchange Board of India (SEBI) introduced Infrastructure Investment Trusts (InvITs), a potential game changer for infrastructure financing.
An InvIT is a trust registered with SEBI and listed on the Indian stock exchanges. InvITs operate just like mutual funds, collecting funds from investors and investing them in long-term revenue-generating infrastructure assets. InvITs not only offer developers a robust platform to churn capital by divesting their operating assets, but also offer investors the ability to invest in stable operating infrastructure assets and earn superior risk adjusted returns by minimizing volatility through visibility on the cash flows of underlying assets.
IndiGrid was formed in 2016 as an Infrastructure Investment Trust (InvIT) with one key goal in mind – “Democratization of power” in India. Imbibing the spirit of the world’s largest democracy, we strive to provide an inclusive ownership of the nation’s power resources to a much larger investor base across the country, while ensuring a strong and robust corporate governance as the foundation framework for this unique platform.
What have you achieved so far?
Growth: Since our listing in June 2017, maintaining stable growth amidst volatility has been our key focus. Since our IPO with two initial transmission assets, we have further acquired six more operational transmission assets, growing from an asset portfolio size of INR 38 Billion previously to INR 106.67 Billion currently, almost 3x times the size since listing. In terms of market capitalization, we have almost doubled from INR 28 billion to currently ~INR 55 billion in a span of just two years on the back of a very successful follow-on equity raise worth INR 25.1 billion in May 2019.
Distribution: These asset acquisitions have enabled IndiGrid to successfully distribute ten straight quarters of distribution, aggregating to a total of INR 27.56 per unit or INR 9,607 million in total to its unitholders, making IndiGrid one of the most attractive yield platforms in India.
Rising Investor interest: We have a diversified investor base with enthusiastic participation from FIIs, DIIs, Life insurance companies, Mutual Funds, Retail and HNIs, whose appetite in IndiGrid has only risen in the two years since our inception. Retail and HNIs hold 12% of our register, an increase in value of more than 1.5 times since IPO. Domestic Institutional holders own 16% with a healthy mix of life insurance firms and mutual funds. Our Foreign Institutional Investors holding is at 57%, out of which marquee investors KKR and GIC own 43%. KKR has also invested majority stake of 60% in the Investment Manager of IndiGrid.
Regulations: On the regulatory front, we continue to work vigorously to engage with various stakeholders like Ministry of Finance and Securities Exchange Board of India (SEBI) and have been able to constructively address policy-related challenges like increasing leverage limit for InvITs from 49% to 70% as well as reducing their trading lot size to one-third in order to make these instruments accessible to retail investors.
IndiGrid is built upon solid fundamentals of transparency, governance & providing superior risk-adjusted returns to unitholders. These are the parameters on which we have concentrated through the last 9 quarters and I am very happy to say that incrementally IndiGrid has made remarkable progress on regulations, on IPO commitments, on acquisitions, on distributions and a track record of 9 quarters for distributions dividends. I firmly believe continued and equal focus on these three guiding factors will help us differentiate the platform from others and achieve our vision of becoming the most admired yield vehicle in Asia.
How will you use your recent funding round?
Our endeavor to ensure stable growth has been well appreciated by global investors. IndiGrid’s preferential issue worth INR 25.14 Billion, launched in May 2019, was highly successful with participation of several global marquee investors including KKR and GIC who invested INR 10.84 Billion and INR 9.80 Billion, respectively. Currently, they collectively own 43% of IndiGrid’s outstanding units. Primary investment of this size by marquee global investors is a testimony to IndiGrid’s credibility as a stable yield and growth platform.
With the capital infusion provided by the new unit issuance, IndiGrid is set to acquire five electricity transmission assets worth INR 115 Billion from its Sponsor, Sterlite Power in the next two years. Out of these, two assets worth INR 54.47 Billion have already been acquired, while three additional assets will be purchased once they become operational.
On the back of these proposed acquisitions over the next two years, we will reach our goal of ~INR 170 Billion of assets under management and soar to a size that is 5x times since listing. Thus, we are well on the trajectory to achieve our mission of INR 300 Billion of assets under management by 2022 while also providing stable and predictable returns to our investors.
What do you plan to achieve in the next 2-3 years?
Investment potential of over INR 4.2 Trillion is envisaged over the next five years in the Indian power transmission sector alone. Transmission network connected to renewable projects is estimated to present around INR 420 Billion standalone opportunity in the next couple of years. This will require fresh capital investment as well as recycling of invested capital for development of greenfield projects. IndiGrid is likely to be at the forefront of enabling this development.
We remain well on our way to achieve our mission of INR 300 Billion of assets under management by 2022, while providing predictable and growing distributions to our investors. The growth is further backed by highest rated stable cash flows from our underlying portfolio and attractive total returns to our unitholders. IndiGrid remains one of the low volatility stocks available at a very high and good distribution yield. Along with that, we are focused on ensuring that our asset base grows, thereby increasing distribution for the investors.
IndiGrid’s assets under management has increased close to 3x times from INR 38 Billion to INR 106.67 Billion in a span of two years since listing on the back of acquisitions. With the planned acquisitions ahead, IndiGrid has a strong pipeline visibility up to 11 assets and an asset portfolio of INR 170 Billion over the next two years which leads to 5x times growth since listing of the platform.
Apart from the sponsor assets, there is a very dynamic market for third-party assets as well, which we continue to evaluate and will inform exchanges and investors for acquiring such assets. The current transmission sector landscape is very robust across ~17,000 ckms and transformative capacity of ~19,000 MVA with ~30 total Inter-State and Intra-State Projects. We also see that over INR 100 Billion worth of bidding opportunities exist right now and for IndiGrid it provides a very good growth outlook going forward beyond 2022.
At a manager level, having a large marquee investor like KKR becoming a majority interest owner, we look forward to benefiting from KKR’s global fund management expertise and experience in investment and asset management. This signifies a great outlook for the prospect of the platform. We remain committed to our vision of becoming the most admired yield of Asia-Pac and will continue to work towards growing the platform while providing predictable distribution and following best in class corporate governance around that.
