Context: Recently, Cabinet approves asset monetization of subsidiaries of Power Grid Corporation of India Limited through infrastructure investment trust.
Background

• POWERGRID is a PSU under the administrative control of the Power Ministry.
• It is a Maharatna company engaged in the business of power transmission.
• POWERGRID started its commercial operations in 1992-93.
• Through its subsidiaries, it owns and operates a pan India transmission network.
• The company meets its fund requirement for its Capital Expenditure (CAPEX) through its internal accruals and debt.
• The Budget 2019-20 emphasized investment-led growth and indicated that new and innovative financial instruments including Infrastructure Investment Trusts (lnvITs), have been launched as part of the brownfield asset monetization strategy for augmenting infrastructure investment.

Key Points

• The Cabinet Committee on Economic Affairs has approved the monetization of assets of POWERGRID, a Public Sector Undertaking (PSU) under the Ministry of Power, through the Infrastructure Investment Trust (InvIT) model.
• This is the first time any PSU in the power sector will undertake asset recycling by monetizing its assets through the InvIT model and use the proceeds to fund the new and under-construction capital projects.
• POWERGRID can now monetize transmission assets held in SPVs through InvIT model. The proceeds from the asset monetization would be utilized by POWERGRID for its CAPEX and the premium generated would augment the net worth of POWERGRID.
• In the first block, POWERGRID would monetize assets with a gross block of more than Rs7000 crore. Based on the experience gained, further monetization shall be carried out in the future.

Benefits of the move

• Asset recycling is a key strategy of the Government of India to release the capital invested in operational assets and the proposed InvIT of POWERGRID would attract both domestic as well as global investors including Sovereign Wealth funds.
• Sale of assets to InvITs is a way of accessing long term, relatively cheap finance required to fund infrastructure projects in the transmission sector.
• The InvIT would provide an opportunity to the general public and institutional investors such as pension funds, mutual funds, to benefit from this investment opportunity and participate in the growth of the Indian infrastructure sector.