Innovative Issue

Sterlite Grid launches India’s first AAA (SO) transmission bonds

Sterlite Power Grid Ventures Limited (Sterlite Grid) has successfully issued India’s first transmission bonds. This move is in line with its policy of using innovative financial instruments for projects. In January 2016, the company issued non-convertible debentures worth Rs 9.25 billion for its subsidiary, East North Interconnection Company Limited (ENICL).

ENICL is engaged in the operation of 400 kV double-circuit (D/C) lines across the states of Assam, Bihar and West Bengal. The project’s first line (220 ckt. km) connecting Purnea and Bihar Sharif was commissioned in September 2013, while the second line (225 ckt. km) connecting Bongaigaon in Assam to Siliguri in West Bengal was commissioned in November 2014.

In an official press statement, Pratik Agarwal, vice-chairman, Sterlite Grid, said, “We have always had a vision to help create a public debt market for privately developed infrastructure projects. We believe this will relieve some pressure on the banking system and can create a new avenue for money supply for infrastructure projects. Our ENICL transaction is a first step in this direction and will immediately reduce our borrowing cost.”

This is not the first time that the company has introduced a new type of financing arrangement in the transmission segment. In July 2014, Sterlite Grid had raised Rs 5 billion from Standard Chartered Private Equity, marking the first foreign investment in India’s power transmission segment.

Issue details

ENICL’s non-convertible debentures have a tenor of 17.5 years. The company has a call option at the end of the tenth year. The bonds were issued in three series with varying coupon rates. The coupon rates were fixed at 8.85 per cent per annum for the Series 1-16 bonds, at 9.1 per cent per annum for the Series 17-36 bonds, and at 9.25 per cent per annum for the Series 37-66 bonds.

The issue was rated AAA (SO) by CRISIL and India Ratings. Financial instruments with this rating carry the lowest credit risk and are considered to have the highest degree of safety in terms of timely servicing of financial obligations. The Infrastructure Development Finance Company, Kotak Mahindra Bank and DSP BlackRock subscribed to the issue on the day of the issuance. The company plans to use the proceeds from the issue for refinancing its existing loans. The bonds are estimated to be 1.5 per cent cheaper than the existing loans.

It is easier for companies to attract financing through bonds for independent interstate transmission projects from pension funds and insurance companies as these projects have firm long-term revenue streams. Their payments are made from a central pool managed by Power Grid Corporation of India Limited. Also, such projects have assured offtake under transmission service agreements, the tenor of which varies from 25 years to 35 years.

Sterlite Grid has, so far, secured seven interstate transmission projects awarded by the Ministry of Power through the tariff-based competitive bidding route. These include the East North Interconnection project, the Bhopal Dhule transmission project, the Jabalpur transmission project, the Northern Region System Strengthening (NRSS) XXIX transmission project, the transmission project associated with the Rajasthan Atomic Power Project (RAPP), the Purulia and Kharagpur transmission projects, and the Maheshwaram transmission project. These projects entail the setting up of extra high voltage transmission lines aggregating a line length of nearly 5,500 ckt. km across 14 states with an investment of about

Rs 85 billion. In January 2016, the company commissioned the transmission project associated with RAPP ahead of schedule. The project involved the laying of a 200 km, 400 kV D/C transmission line passing through Rajasthan and Madhya Pradesh. In addition, Sterlite Grid commissioned four projects in its portfolio with a line length of around 2,900 ckt. km. The Purulia and Kharagpur projects, NRSS XXIX and Maheshwaram are currently under execution.

The way forward

Given Sterlite Grid’s project pipeline, it is expected to continue exploring avenues for availing of competitive sources of finance. The company is likely to issue another tranche of bonds worth Rs 25 billion for similar projects in the near future.

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