The India Grid Trust (IndiGrid) recently signed an agreement to acquire a 74 per cent stake in Parbati Koldam Transmission Company Limited (PKTCL) from Reliance Infrastructure Limited at an enterprise value of Rs 9 billion.
PKTCL, a joint venture between Reliance Infrastructure Limited (74 per cent) and Power Grid Corporation of India Limited (Powergrid) (26 per cent), was set up in September 2002 and started operations in June 2015. As part of the recent agreement, Powergrid will retain its 26 per cent stake in the transmission company. IndiGrid will have management control over PKTCL.
IndiGrid is India’s first power sector infrastructure investment trust (InvIT). Set up in October 2016, it is backed by marquee global investors such as KKR and GIC. PKTCL is the first regulated asset in IndiGrid’s portfolio (all the others were acquired through tariff-based competitive bidding). With this deal, IndiGrid’s overall portfolio is expected to reach close to Rs 147 billion. A closer look at the proposed merger and acquisition deal…
Deal details and asset overview
PKTCL operates 458 ckt. km of transmission lines, constituting an inter-state transmission system for power evacuation from the Parbati II hydroelectric project (HEP), implemented by NHPC Limited, and the Koldam HEP, implemented by NTPC Limited. PKTCL entered into a transmission service agreement with Powergrid on December 24, 2013. PKTCL has been operational for the past five years and has had an average availability of 99.2 per cent, thereby consistently qualifying for Rs 20 million-Rs 30 million in incentives, note equity analysts.
The aforementioned implied enterprise value (for 100 per cent equity shares) of Rs 9 billion is inclusive of cash and cash reserves, as well as normalised tariff receivables, subject to adjustments on account of movement in cash, deviation in outstanding debt, tariff receivables, assets, and liabilities outstanding as on the actual closing date of the transaction, as per the share purchase agreement between the parties.
Further, PKTCL’s regulated equity stands at Rs 2.73 billion and, with a regulated return of 15.5 per cent, its profit after tax works out to Rs 420 million. Its debt is about Rs 4.2 billion (to be repaid by 2031 on a normative basis). In terms of financial performance, PKTCL registered a total revenue of around Rs 2.09 billion in 2019-20. Its net worth stood at Rs 4.4 billion during the same period.
Prior to this acquisition, IndiGrid’s total assets under management stood at Rs 140 billion. It has a total network of 28 transmission lines comprising about 8,001 ckt. km and nine substations with 1,460 MVA of transformation capacity.
During the first half of this financial year, IndiGrid made two acquisitions. In June 2020, it bought 100 per cent stake in Jhajjar KT Transco Pvt. Ltd, owned by Kalpataru Power Transmission Limited and Techno Electric and Engineering Company Limited, for Rs 3.1 billion. This was IndiGrid’s second deal with Techno Electric and the tenth since the InvIT listed on the stock exchanges in 2017. Earlier, in August 2018, IndiGrid had acquired Patran Transmisison Company Limited from Techno Electric for Rs 2.32 billion.
The second deal was the acquisition of the assets of Gurgaon Palwal Transmission Limited from Sterlite Power for Rs 10.8 billion as part of a framework agreement. IndiGrid also entered into an exclusive framework agreement with Sterlite Power to acquire three projects worth Rs 65 billion, as and when they are commissioned.
In terms of financial performance, in the first half of the current financial year, IndiGrid’s revenue and EBITDA numbers stood at about Rs 7,450 million and Rs 6,680 million, registering a year-on-year growth of 29 per cent and 26 per cent respectively.
IndiGrid’s growth plans have been reaffirmed by the successful induction of KKR-affliate Esoteric II as a sponsor, marking an extension of IndiGrid’s strategic relationship with KKR. KKR had earlier invested Rs 10,840 million in the platform through a preferential equity issue in May 2019, and currently owns around 23 per cent stake in IndiGrid.
The PKTCL acquisition is subject to the terms of share purchase and other definitive agreements, as well as requisite regulatory and other relevant approvals. Once complete, the deal will mark a significant step forward for IndiGrid, which aspires to reach Rs 300 billion of total assets over the next two years by acquiring more transmission and renewable energy assets.