Sterlite MRP Transmission Assets Acquisition
Context
- As of 2016, Sterlite has a total portfolio of 10 projects worth USD 1.5B, four of which are fully operational, two partially operational and four under construction
- Sterlite is looking to pare down its debt-level whilst still investing in new projects
Problem
- A tight capital market environment, both in terms of debt and equity, has discouraged project developers from investing in power projects
- Power companies are looking to free up their capital to raise resources for fresh investments
Innovation
- India’s first power sector focused InvIT (Infrastructure Investment Trust) was set up to enable Sterlite Power to monetize existing inter-state power transmission assets
- An InvIT is a collective investment scheme enabling individuals as well as institutional investors to invest directly into infrastructure projects
Stakeholders Involved
- Securities and Exchange Board of India (SEBI) – Functions as the regulator for InvITs
- IndiGrid – Investment trust fund
- Sterlite Power Grid – Sponsor for IndiGrid
- Sterlite Investment Manager (SIM) – Manages the trust
- KKR - Co-sponsor with stake in SIM
- GIC Co-investors and owners of the trust fund
- Reserve Bank of India (RBI) — Functions as bank regulator
Results/Impact
- InvITs allows project developers such as Sterlite Power to monetize existing assets and provide liquidity for additional projects, provided that sponsors meet various eligibility criteria set by SEBI1 (e.g., minimum net worth of USD 1.4M)
- Following investments by KKR (USD 157M) and GIC (USD 142M), investors now collectively own 40% of IndiGrid; KKR also currently owns 20% of SIM, but aims to increase this to 74% by 2021 pending SEBI and other stakeholder approval
- Assets under management in the power transmission sector for both Sterlite Power and IndiGrid combined is targeted to reach USD 10B by 2021-22
Key lessons learnt
- Focusing on acquiring operational assets means that InvITs can serve as a platform for long-term foreign investors who want a low-risk, predictable cash flow distribution
- InvIT structure allows trust to be scaled up significantly through co-sponsorship, leveraging on the financing capabilities of co-investors and at the same time tapping the pipeline of the sponsor/ developer
- Various regulatory safeguards can be set in place by having stringent eligibility criteria for sponsors as well as investment restrictions to ensure strength of the InvIT and quality of investments