Powergrid Corporation of India is launching InvIT (Infrastructure Investment Trust) IPO, the first-ever by a state-owned firm. The Rs. 7750 crores public offer comprises fresh issuance of units aggregating up to Rs. 5000 crores and offer for sale of units worth Rs. 2750 crores. For more information, you can refer to the IPO Prospectus filed by the company.
Powergrid InvIT (Infrastructure Investment Trust) is set up to own, construct, operate, maintain and invest as an infrastructure investment trust in power transmission assets in India.
The InvIT is sponsored by Powergrid Corporation of India, India’s largest power transmission company. The state-owned firm is engaged in project planning, designing, financing, constructing, operating, and maintaining power transmission projects across India and undertakes operations in the Indian telecom infrastructure sector.
The Initial Portfolio Assets comprise five power transmission projects located across five states of India:
There are tax benefits for certain types of income distributed as dividends from InvIT if they haven’t opted for the lower tax regime. The IPO Prospectus (Page 267) mentions about it -
TAX BENEFITS AVAILABLE TO UNIT-HOLDERS OF POWERGRID INFRASTRUCTURE INVESTMENT TRUST
2.1 Tax Benefits available to the Unit-Holders of the Trust
Following tax benefit is specifically available to the unitholders of the Trust subject to the fulfillment of the conditions specified in the Act and SEBI Regulations:
Section 10(23FD) of the Act - Tax exemption in respect of income distributed by the Trust:
As per the provisions of section 115UA(1) of the Act, the income distributed by the Trust shall be deemed to be of the same nature and in the same proportion in the hands of the Unitholders as if such income was received by or accrued to the Trust.
As per the provisions of section 10(23FD) of the Act, any income referred to in section 115UA of the Act and distributed by the Trust [except for that proportion of income referred in sub-clause (a) of clause (23FC) or sub-clause (b) of said clause (in a case where the SPV has exercised the option under section 115BAA)] shall not be included in the total income of the unitholders.
Please note that in view of the provisions of section 14A of the Act, any expenditure incurred in relation to earning the above exempt income shall not be tax deductible. In case the Tax Authorities are not satisfied by the disallowance considered by the Trust , the quantum of disallowance shall be computed in accordance with the provisions of section 14A read with Rule 8D of the Rules.
This article explains it in more detail -
Also, dividend payments have been exempted from TDS starting this financial year -
What yield I can expect from this invit? Various brokerage reports mentioned yield from 8 to 12% annually. I do not find any mention of yield in the prospectus of this invit. How one can infer future yields?
This is not a debt product, so yield are neither listed in prospectus nor guaranteed. One way to infer yield would be to check what is Free cash flow (which is provided in prospectus). InvIT has to distribute at least 90% of cashflow to its unit holder - that should give you distributable amount. That divide by total Mcap should give some idea of indicative yield.
Most of the assets in InvIT are mature and cash flow should remain stable, so this should give good idea.
But again if cash flow changes in future, yield will change.
Also remember, yield you are getting is not interest you get in normal debt. distributed income here is part interest + part dividend + part capital repayment. So you need to compare it accordingly.
I didn’t really check trading lot on listing day so can’t comment on that. But as per regulations, minimum investment has to be above 1 lakh, so chances of trading lot of 100 is rare.
On returns, payout for first few years is going to be high, so even return like 12% in first couple of years is possible. But do not compare this to fixed return bonds because
a) returns are not fixed nor guaranteed
b) the way cash flow are designed, after first 3-4 years payout can reduce
c) there is no return of principal at end of tenure like normal bond.
So if you can understand these complexities go for it. Just do not assume this to be a normal bond and invest in it based on 12% yield number.
Ideally the trading price should remain 100 since the profits etc is distributed every year to unit holders. What is the approx date for such event. Opportunistic traders can buy from market prior to profit distribution date and dump post that??
Lot size -That is something I am still unable to figure how it is happening. need to study more on lot size
There is no fixed date for distribution but first distribution should happen in 6 months from listing and then it should happen once every quarter.
Price will not remain fix because like any other debt product price will change to price it to current market yield. Hypothetically if this pays 11 rs. payout a year then effective yield is 11% which is high in current environment, so people would be willing to buy it even for 110 (effective yield 10%). That’s why it is appreciating right now. If yield curve changes, it might very well drop too.
Yes opportunistic trader can always time it and this is true even for normal debt instrument and even high dividend paying stock. However since payout happens quarterly and would be around 2-3 rs / quarter, opportunity of doing that will not be very high.