- May 27, 2019
- Posted by: Anuraag Susarla
- Categories: Blog, Featured
INGRID INVIT( Introduction)
1) One of the first investment trusts introduced to the Indian market.
2) An investment trust is something that has assets under its management and generates revenues from those assets and returns the stakeholders or in this case, Invit unitholders.
3) One of the most important factors underlying an investment trust is the underlying assets it owns.
4) They could be toll gates, transmission lines, rental buildings and other investment yielding platforms.
Detailed Explanation of InViT
This yield vehicle instrument has transmission lines and substations as its assets. It generates money through these transmission lines. A simple mechanism is we (consumers) pay money to the PGCIL and it pools the money and distributes to the various managers of the substations and in turn, Ingrid pays to its shareholders the interest, which it calls DPU or distribution per unit.
1. Currently, the DPU per year stands at 12 per unit, which is about 12% yield on 100 INR per unit. This distribution is not only the sole income, but the trust could also buy more assets and add value to the shareholders’ units and even increase DPU by increasing the assets. It is planning to increase the revenue generated by the assets (current and developing) to over 300 billion INR by 2022.
2. It is backed by a stellar promoter, Sterlite Power Transmission Limited, the market leader in India in the transmission sector and the rules say that the promoter or sponsor has to hold at least 15% or more in the trust and currently they hold about 21.7%.
3. It has to hold, at any given time, at least 80% or more revenue-generating assets according to the rules, which helps in predictable cash flow and in overcoming adverse infrastructure conditions.
4. Another reason as to why this invit is a good yield vehicle is because of the perpetual contract of the transmission lines extends to about 35 years after the starting of the substation, which means there would be very minimal, if not none, competition in this area and constant generation of cash, month after month. The transmission lines have about 55+ years of age and they are obliged to give 90% or more of the cash flows to the stakeholders.
5. The advent of solar technology, as many might think is actually not a negative to this trust but a net positive as this trust is ‘type of power’ agnostic. These lines provide a way to transmit energy and don’t bother about whether energy is generated from coal or through solar.
6. They have 7 sponsor assets as of now, with 2 operational and 5 under construction with ROFO, (right of first offer) which means when the sponsor starts building it, this trust has the inherent right to manage them and benefit the stakeholders. They are also looking at acquiring third party assets from other groups as well.
7. Also, the net borrowings should be capped to about 49% of the assets managed by them, which ensures that the trust is not debt-burdened.
8. This trust has a strong Investment committee with a good corporate governance framework with stakeholders having “right to vote” on various decisions.
9. This trust is owned by many of the leading Insurance and asset management companies (Foreign and Indian), like Schroders, Reliance Life insurance, Birla Sun Life, Edelweiss, DSP Blackrock and Aviva Life insurance to name a few.
10. To put it simply, it comes somewhere between equity and bonds. The growth in its underlying assets is attributable to the equity part and the interest payout takes care of the bonds.
*This article should not be perceived as a piece of Investment advice.
~ ANURAAG SUSARLA