Thank you, and over to you, sir.
Thank you, Rutuja. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I am pleased to welcome you all for the IndiGrid Trust call to update and discuss recent acquisitions in transmission and solar sector. We have with us today Mr. Harsh Shah, CEO and Whole-time Director of IndiGrid Investment Managers Limited, representing IndiGrid Trust on the call. He is accompanied by Mr. Jyoti Kumar Agarwal, CFO, and Ms. Meghana Pandit, Head M&A and IR at IndiGrid. We will begin with opening remarks from Harsh on strategy and subsequently on the deal. This will be followed by the Q&A session. With this, I hand over the floor to Harsh. Over to you, sir.
Hi. Thank you, and thank you everyone for joining the call today. To start with, wishing you all a great year-end and wishing a Happy New Year for the next year in advance. Today, we are gathered here to discuss a couple of updates on the business that we have recently looked to acquire. We believe that it is something new that we have done, and therefore it is essential to have a call and explain on how this fits into our overall strategy. To start with, I'm on slide number four to reiterate our vision. Our vision is to become the most admired yield vehicle in Asia by keeping a focus business model, value accretive growth, predictable distribution, and optimal capital structure.
As you would have seen in most of our business and actions, we have kept these four principles in place, and most our business strategies we do is on these principles to ensure that fit into our overall game plan. The next slide is a quick snapshot about our size and scale today. We are approximately INR 14,000 crore in AUM as in September, and we have presence in 14 states and one UT in India. We own 28 lines and nine substations with approximately 6,000 km and 11,000 MVAs. We are rated AAA by all three large rating agencies, and our residual contract life is still 32 years. We own approximately 9,800 towers and having a sizable amount of metal in the portfolio.
As you would have gone through certain press releases, our primary focus is to acquire operating projects with long-term contracts, low operating risks, and stable cash flows. We believe both the acquisitions that we have done is fitting that criteria. Both of them are new because neither are they from our sponsors or not just a TBCB project, so both of them are unique in its own way. I would invite Meghana, who looks after M&A and capital raising for IndiGrid, to brief on the slides from slide number seven onwards on both acquisitions, and subsequent to that, we would go towards a Q&A session. Meghana, over to you.
Yeah. Thanks, Harsh, and welcome everyone on this call. The first acquisition that we have captured in this slide is on page number seven, which is Parbati Koldam Transmission Company Limited, wherein we have signed definitive agreements for acquiring 74% stake. This project was awarded on a build own operate, BOO, basis by the Ministry of Power. It is in a joint venture between Reliance Infra and PGCIL. PGCIL owns 26% in this SPV. Another unique feature about this asset, this is a Section 62 asset, which means that it was awarded on a cost-plus tariff mechanism. This will be the first asset that IndiGrid is acquiring, which is of a cost-plus nature. It has been operational since November 2015, a great operational track record that we have seen.
Totally, in this project, if you look at it, there are about two tariff generating elements spread across totally 458 circuit km. Again, this project is a very critical project for evacuation of power from hydropower projects of Parbati and Koldam, which connects with the downstream transmission network in Punjab. This being a build own operate project, again, the contractual life of the project is about 35 years, which is in line with most of our other projects which have been awarded on a TBCB basis. Again, from a tariff perspective, it forms part of the point of connection mechanism, wherein the central transmission utility, which is PGCIL, acts as a CTU and through a pooled account mechanism, the tariff gets distributed.
I think as Harsh mentioned on the call, this acquisition fits in very well with our stated strategy of looking at assets which provide long-term stable cash flows. This is a fixed return project, as I mentioned, since it was awarded on a cost-plus basis. A fixed ROE of 15.5% is provided through the tariff regulations by CERC for the period between FY 2019 and FY 2024. On the operational performance, we have seen that all throughout there has been annual availability of more than 99.5%. It has been constructed by tier one suppliers of Kalpataru, KEC, and the likes. Going on to slide number eight, just a few acquisition details that we have provided. The SPA we executed in last week of November.
The total enterprise value for this project works out to about INR 900 crore, and it is subject to customary closing adjustments with respect to the cash balance, the net current assets, et cetera. The acquisition is also subject to customary regulatory approvals, including from PGCIL, from the existing project lenders. With currently the underway on completing the conditions precedent, we are expecting that the transaction will get consummated by Q1 of FY 2021. We do not envisage any equity dilutions or acquisition of this project. We had raised about INR 2,500 crore last year through the preferential allotment. Those funds, plus the available debt headroom and the internal approvals will be utilized for funding the acquisition of this project. Slide eight, last table provides for the average line availability and the broad estimate of revenue and EBITDA for FY 2020. Moving on slide number nine.
In April 2020, we had taken unitholder approval for our diversification strategy, which was to enter into renewable sector by acquiring operational solar projects. Broadly, slide number nine talks about how are we looking at this diversification strategy. The assets that IndiGrid will look at in the solar sector will comprise of assets which have a long-term contract, which have minimal counterparty risk. We will focus only on counterparties like SECI, NTPC, GUVNL, which will again have some track record basis, which we will be looking at acquiring them. As well as, again, look at the quality of the project, in terms of whether the tier one equipment suppliers have been sourced on implementation of the project, how robust is the infrastructure, et cetera.
With that focus and with that strategy in mind, we have gone ahead and entered into definitive agreements for acquiring about 100 MW AC capacity of two solar PV plants from an entity called FRV, Fotowatio Renewable Ventures. This is a Spanish entity and has a track record of developing about 5 GW of solar projects across entire Europe, U.S., Middle East. This project, per se, the 50 megawatts is placed in two SPVs, and the PPA, they have an operational history of about two and a half years. The tariff for the project is fixed at INR 4.43 per unit, with about 44 lakhs of VGF per megawatt. From a connectivity perspective, they are directly connected through a PGCIL substation that is between three and 8km for T28.
As I mentioned, the assets were commissioned in July 2018 and have a track record of around two and a half years. The existing lenders to the SPVs are again reputed lenders of IFC, FMO and IREDA. As far as the equipment suppliers are concerned, the modules were provided by Trina and LONGi, which form part of the tier one category. Inverters are provided by Sungrow, the turnkey EPC contracts were done by Sterling and Wilson. An important feature to talk about this asset is the assets in FY 2020 have generated about 200 million units, which basically means that they have ended up saving about 160,000 tons of carbon dioxide emissions, which is equivalent to carbon dioxide absorbed by 76 lakh trees. Moving on to slide number 11 on the acquisition details. The definitive agreements were executed just about a week back.
This will be the 11th potential accretive acquisitions after listing and after we acquired PKTCL also. For PKTCL, we are not envisaging any equity dilution for acquisition of this project, and it will be funded through the preferential issue proceeds and the existing debt headroom and internal accruals. For these projects, the enterprise value comprises of INR 660 crores with zero cash and zero receivables. As I mentioned, there is sufficient debt headroom which is available, which will be utilized. The table on the slide provides the plant and the grid availability, which are key metrics which we typically look at in solar projects. As you can see, the plant and the grid availability have been very robust since COD, more than 99.5% in both the plants, with the revenue and EBITDA being about INR 97 crores and INR 86 crores respectively. Moving on to the next slide number 12.
Broadly, if you look at both after acquiring both these projects of PKTCL and FRV, we expect our AUM to increase by about 12% from existing INR 14,000 odd crore to INR 15,500 odd crore. The net debt to AUM, which currently stands at around 54%, after acquisition of these projects will be about 58%, leaving sufficient headroom for acquiring our framework assets of NER and KTL from Sterlite Power, which we have already announced. The annual EBITDA for both these projects that we are estimating is close to about INR 225 crore, and the estimated annual NDCF contribution on both these projects will be in the range of about INR 40-INR 50 crore. If you look at the right-hand side map of India, as you can see, we have a great geographical diversification with the existing 11 projects.
The addition of these projects will just add on to it across the northern region, as well as with the solar assets in the southern region. With that, I think we will end the presentation and the submission from our side, and I will request Sumit to open the discussion on the Q&A from the investor side. Thank you.
Okay. Rutuja, can we please take the first question?
Thank you very much. We'll now begin the Q&A session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mohit Kumar from DAM Capital. Please go ahead.
Yeah. Good afternoon. First, congratulations on completing and inking the agreement acquired for the assets. Two questions. First is on the tariff. I think tariff is INR 4.43, which is fixed for 25 years. Is there any dispute on the tariff with AP? Are we being paid half of the amount? What is the receivables outstanding? Is there any adjustment we need to pay over and above that once the judgment comes in? That's the first question. Yeah.
Okay. Thanks, Mohit. This question is pertaining to solar, I believe, on FRV side. While this plant is physically located in Andhra Pradesh, but this is a SECI contract, so our counterparty is SECI. Therefore, at this moment there is no litigation or any outstanding matter with Andhra Pradesh. There is no issue or tariff withheld or reduction of any kind. There's no dispute. Our receivables are in the line of approximately 75 days, which is as per market with SECI payments. SECI publishes the payment track record publicly for all GENCOs, and one can check that. Until now, there's been 100% payment track record by SECI and without any delays. While physically this plant is located in Andhra Pradesh, the location is good because of irradiation. The contract is with the central sector counterparty.
Okay, understood. Tell me, what are the capital costs, excluding VGF? What is the capital cost of setting up this power plant, FRV?
Okay. Meghana, do you want to answer that question?
Yes. The project cost for both the plants put together was closely about INR 650 crores.
How much?
INR 650 crore.
Okay, understood. On the Reliance Parbati Koldam Transmission asset, last time, of course, the acquisition failed. I don't know the exact reason. When do you expect this transaction to conclude, and do you see any hurdles in completing this acquisition? What happened last time exactly, why this fell through?
We can't comment on somebody else's.
No. I understand there was some procedural issue, right? That's the reason I'm asking.
Yeah. Procedurally, what we can say is that this asset is a joint venture with Power Grid. Till the five years from commissioning, if any sale of this asset were to happen, Power Grid had a right to say no. Okay. Therefore, probably it didn't happen because of that. This five-year lock-in completed on 3rd November 2020, and our agreement got signed after that. In such scenario, the SHA with Power Grid in the joint venture provided them right of first refusal. However, they do not have right to say no. That is the difference probably, is there between the two timelines. I think that's what we believe could have happened.
Understood. Thank you.
Thank you.
Thank you. The next question is from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.
Good afternoon, Harsh and Meghana, and thanks a lot for taking my question. First question, if you can comment on the project and equity IRR for these two transactions for the stake that we have purchased for PKTCL and for the full asset on the FRV.
Sarvesh, thank you for the question. For any new acquisition, we look at different metric. For this case also, both these assets are of different nature. We'll try to describe how one can look at it. Starting from PKTCL acquisition, which is unique because it is a cost-plus asset. Over here, more than IRR, we are looking at it as a dividend play, and one can look at it as a dividend discounting model as well. This project has approximately INR 275 crore of equity, which is regulated equity on which the project earns approximately 15.5%. There are obviously certain minor adjustments both on up and down. One can take 15.5% as a regulated return on the equity base of INR 275 crore. Right. That's more or less. If this is the dividend that is accruing to us as a project, this dividend is post-tax.
We can actually take this amount and upstream to IndiGrid as a dividend payable, and IndiGrid can provide to investors as a dividend received on which investors will not have to pay tax because the SPV is in the old tax regime. We use, I would say, this dividend is kind of a perpetual dividend that we receive out of this asset. Therefore, the right metric to look probably would be a dividend discounting or a dividend multiple method.
Understood. You have acquired this at price to book of one?
No. We have not acquired at a price to book of one. We have acquired at price to book of approximately 1.5. A 15.5 becomes a 10.5, and with a little bit of leverage headroom that we have, we can increase it further. On an unlevered basis, if you were to look at it on an unlevered equity basis, because this is an unlevered project right now. We earn approximately 10.5%-11% dividend. Right?
This will be tax-free if you declare dividends on this.
Correct. I'm not commenting on complete tax-free nature, because if somebody were to receive more than INR 10 lakhs of dividend, probably it's taxable in their hands. In whichever tax regime you are. This is an old tax regime. If one were to say in old tax regime, the dividend will be tax-free in the hands of investor.
This is a bit different because this is tax-free at 10.5 versus maybe 12%.
Again, 10.5 is unlevered. With just a 10%-15% extra leverage more than SPV, we increase it to substantially higher. I would say that's the right way to look at it. In addition to that, as you know, this is not a acquisition which is necessarily requiring us to do capital raise. The entire amount is coming from the same equity base.
You will pass this on as dividend, not as interest.
Yes, that is correct. We've not yet acquired, but that is correct. Directionally, the unique aspect of this asset is also that we will be able to pass through the dividend as dividend, not as interest.
Okay. If we just do two by nine, I mean INR 2 billion of EBITDA divided by INR 9 billion of enterprise, that looks to be on the higher side. What am I missing here?
Sorry, what is two by nine? Can you repeat that?
EBITDA of INR 2 billion divided by INR 9 billion of enterprise.
No, important question. I think we have given the INR 200 crore EBITDA as a matter of fact representation. This also includes depreciation payment. In a cost-plus project, typically, your depreciation payments are also paid as part of your EBITDA. Right? Therefore, in the initial years, you have a very high EBITDA, and the later years, you have a fixed dividend coming out of the project. Which also provides us opportunity to actually optimize further for better IRR. In addition to that, this also includes one-time revenue of INR 40 crore to be received in one-time revenue booked on account of change in COD for the earlier three elements.
Understood. Can you just comment on FRV, IRR as well?
Correct. FRV, again, IRR is a function of leverage and cost of debt, everything put together. I can give you directionally, we have acquired at approximately 7.25 to 7.4 kind of EBITDA multiple. Right?
Yeah.
At our cost of debt and our leverage would result into a even if you were to assume a reasonable leverage. Basically, it's far more attractive because of the multiple. I think multiple is a better way to look at this asset. IRR would result into a substantial accretion from what we are right now. I don't want to give a specific number. Multiple is something which is easy to communicate in public.
Yeah. Meghana commented that the project cost was almost equivalent to the enterprise value. Now this came in four years back, and interest costs have substantially declined in the market. How are we able to get it at the similar enterprise value as the project cost four years back?
Okay. Very good question. First of all, we have been working on this asset for about a year, our values were locked much earlier. As per the contract, we have locked in this asset very early on. Second, as such, we are not really linked to the capital cost of the project. We are largely in terms of how do we value a particular project based on the ability to earn cash flow. As we have seen it in the past, we have acquired projects at a below market price, below CapEx cost also, and above CapEx also. As such, we don't really, I would say, consider the CapEx amount on account of if they made a higher cost or a lower cost. That's not our prerogative.
How we have acquired, I think that's something which is based on our, I would say, competitiveness, that we are able to provide a swifter solution, a better solution. That's the way to look at it. Again, this project had a VGF, et cetera, so overall cost, et cetera, makes approximation slightly more complicated.
Okay. Since for solar assets, the problem was the possibility of volatility in the cash flows, as opposed to our usual stuff that we do. What has been the volatility in the last three years, FY 2018 to 2020, for this asset? If you can comment on that volatility.
In terms of? Sorry.
In terms of the cash flows that will accrue to you. For the solar assets, the possible problem is there can be a volatility as opposed to a fixed revenue.
Understood.
Which is independent of everything, right? In your usual business.
Yeah. We have seen that we have at least a good part of this project has a full year of history, and this project has also several other hundreds of MW around in the solar power plant. We have seen that the grid availability has remained more than 99.8, 99.9, so there are no issues. It's a very small line which is connecting to a large substation. Grid availability has not been an issue at all. Plant availability, I think first three, four months, obviously there is a settling period, but last 18 months have been phenomenally good. I would say not operational, not technical and not collection. I think none of the parameters we have seen any surprises or volatility in this plant.
Okay. My final question, if I may. Those are like INR 500 crore, INR 600 crore assets that we are acquiring. I wanted to know now that we have built some sort of a platform, what is the advantage that is coming to us as a platform as opposed to, let's say, a family office which wants to buy these sort of asset at INR 500 crore, INR 600 crore? Because these are not very large amounts for Ultra HNI or even other firms to sort of try to buy, especially when the yields are coming down across the board. Are we getting some advantage now because of the platform? If you can quantify it a bit.
Let's say you are a large HNI of INR 500 crore. Would you buy a listed instrument which you can sell any day and have a tax advantage, versus buying a physical asset which you need to run every day and figure out how you're going to run it? That's the first question. It becomes a no-brainer that when the scale comes, the benefit is that we are able to deploy the right kind of resources behind it, right? Whether it's in terms of people or in terms of managerial or leadership bandwidth, or in terms of technology. I'm sure you would have read about recent partnership with IBM that we did for our portfolio. That's a sizable CapEx. You couldn't have done that in a one, two, three portfolio asset size.
With scale, the advantage come in terms of reliability of asset, predictability of asset, because you are able to deploy right amount of technology and resources on that. The third one, which is overall reduction of O&M cost, because we are having the scale. That I would say, called an operating synergy. The next synergy exists for us on account of, I would say, financial synergy. We are AAA, and I would say we are one of the few, if not only AAAs in the country with having a AAA rating and acquiring renewable energy asset. We do have, I would say, cost of fund advantage. The third one is the structural advantage. We are framed as an InvIT, and which allows us to extract all the cash and provide it to our investors, which for some investors is preferred.
Therefore, overall, we are able to provide a better outcome because of these three parameters.
Understood. Your NDCF accretion for the last four, five acquisitions that you have announced will be around INR 100 crores cumulatively, INR 40-50 coming from these two only. That is like INR 1.5 per unit. What is the plan now? Is it more acquisition with this or increase of DPU? How are you thinking about that?
Sir, you're asking the right question. We are waiting for the year to end, right? We need to take stock of what is the NDCF for the full year basis. In any case, we have to distribute minimum 90% at both SPV and IndiGrid level. These acquisitions would happen in Q4, so may not yield materially in this financial year, right? These numbers are annualized, not quarterly. We'll have to take a decision in Q4 and the Board of the Manager and us will decide what is the right set of DPU based on the NDCF. We will come with a plan in probably Q4 meeting. Because we have just come out of COVID, I would say the first two quarters we are discussing about preserving cash.
Suddenly there is a turn in events and markets have become far more liquid. We would like to just see the full year catch up, how does that become, before we, I would say, increase the DPU. If at all our NDCF becomes materially large, we anyways have to do it.
Yeah. That's the question. The 90% of these annualized cash flow for all the assets that have been announced till now, is that greater than 12?
Not now, because these assets will come in quarter four.
No, the annualized number next year.
Yeah. Maybe next year there might be a compulsion to do that.
Understood. All the best, Harsh. Thanks a lot. Thank you for all the questions. Thank you.
Thanks.
Thank you. The next question is from the line of Abhilasha Satale from Dalal & Broacha. Please go ahead.
Thank you for taking my question. Sir, we have fixed the tariff at INR 4.2. However, we are seeing most of the solar, the recent solar tariff are below even the recent one, which this has backed NTPC has backed it is below INR 2. Do you find any threat of the tariff going down in future or anything of that sort of this wind, where in this contract?
Yeah. Abhilasha, I think it's an important question. We evaluate from a perspective when we are acquiring that is this materially higher than APPC of the state or counterparty. In this case also, we are not materially higher than APPC. I don't think we can evaluate contracts from or rather contract sanctity from incremental cost. Because by that logic, a lot of capacity in India would have become redundant. The way we see it is incremental cost of electricity of solar will come down. On the other hand, if you have a reasonable cost of power, in that scenario, we suspect that these contracts will be renegotiated. They are very fairly strong, clear contracts, and they are with credible counterparties like SECI, so we don't see that as a risk.
Historically, there have been such attempts by even Gujarat, a state like Gujarat, with a tariff like INR 15, it hasn't succeeded. We believe the regulators and judiciary is fairly clear on this point, and if a state asset with a state PPA with a INR 15 kind of disincentive had to eventually pay and are still paying, with a central counterparty with a INR 4.5, we don't see it as a risk to the business.
What is our current debt level and what will be the debt level after these acquisitions?
I think the debt level after these acquisitions was there in the presentation, approximately 58%.
Yeah. Okay. Thank you.
Thank you.
Thank you. The next question is from the line of Varun Agrawal from BOI AXA Mutual Fund. Please go ahead.
Hi. My question is around the strategy of going forward increasing the share of renewable energy in our portfolio. What kind of impact it can have on the overall IRRs and dividend distribution and our overall asset profile?
Sorry, can you repeat that question, please? I'm not sure.
Am I audible?
Yeah.
Okay. Sorry. I'll repeat my question. I wanted to understand the overall strategy of increasing the renewable energy assets, which is solar and other assets or generating assets in our portfolio. What kind of impact it can have going forward on our dividend payment, IRRs, and overall asset profile?
Okay. One can look at it from different angles, whether it's from a risk perspective or return perspective. I'll try to address it on both. One is, the solar assets which we are acquiring, even central counterparty assets, are going to be more accretive. They're going to be higher returns. As I said, we acquired it for 7.5 kind of EBITDA multiple, whereas transmission assets go at least 10%, 15% higher, so about 8.5, 9 kind of multiple. There is a difference between in terms of accretion that happens. On the other hand, there is also slightly higher risk, because there's a point of connection mechanism tool for transmission assets, which has got a far longer track record versus what we are acquiring from SECI, NTPC, that is relatively shorter track record.
As part of our strategy, we don't follow a particular mix. We want to be 20% renewable, or we want to be x% something, et cetera. Our focus is to, as I started with the presentation, to find assets with long-term predictable cash flows. Right now, we have identified as a solar as an area. Maybe we may get good acquisition opportunity, maybe we don't. There is no set pattern that we need to follow. Therefore, I think we are neutral to a percentage. As a guidance, we have been telling investors and debt participants as well that at no point in time, we are looking to cross solar assets of our portfolio of 20%-25%. That is an outer cap. Doesn't mean we have to be at 20%-25%.
We may be at 15% and still be happy. Our focus is on managing the risk by selecting the good quality asset with good counterparty and ensuring that they operate. After that, the percentages is not something which is part of our business plans.
Okay. Thanks. One more question on the similar line. In terms of predictability, a lot of these solar assets might have variability in terms of the availability of sunlight and other things. Do you think this, between 20% exposure, will have too much impact on our cash flows, considering till now most of our assets are more or less?
Yeah. Important question. I think, see, the way to look at it is twofold. One is solar as a resource is not as unpredictable. Solar started in India on a commercial scale somewhere around 2007, 2008 period. In most of the solar generating stations or rather, let's say regions, there is more than a decade of solar data available. The solar generation or irradiation per se is not materially variable. That's one point. Second point. Right now, we are looking just one asset. Let's say if per call we are at 15%-20%, we are not looking to buy it in one area, right? Maybe you have 5% capacity in Andhra Pradesh, 5% capacity in Rajasthan, maybe 10% capacity in Gujarat. We don't know that. What solar offers us an opportunity is a diversification.
You are not concentrated in a particular geography, which will hit you hard if suddenly there is a higher rain in that year and you are impacted. It's not a concentrated capacity, it is a distributed capacity in relation to scales. Therefore, we don't get material impact on that account. Solar that way gives diversification and the impact is lesser. Vis-a-vis transmission, and I'm not saying the transmission is more risky, but it's kind of a concentrated impact, right? If our one line, if 10% of our portfolio is down for one month, we'll have a far higher impact on our balance sheet, P&L, than one solar plant having a little bit of less generation on account of higher rainfall. It is not really adding that much of risk on account of solar irradiation. Does that help, question?
Yeah, absolutely. Just one last question. In terms of the payment pattern, we don't see any issues in terms of solar assets. As we have already mentioned, we are focusing more on SECI and on central government or when assets which you're buying are more linked to where there's a predictability of cash flow, so that the cash flows itself are not delayed.
Correct. No, I think let's not club all solar generation into one bucket. Right. We are buying solar assets with very select counterparty. That means SECI and NTPC, which exactly addresses the risk that you are trying to address.
Understood. Thanks a lot. That's it from my side.
Thank you.
Thank you. The next question is from the line of Hansal Thacker from Lalkar Securities. Please go ahead.
Hi, Harsh. Hi, Meghana. Congratulations on the last two acquisitions. Just one question. Can you throw some light on the cost of debt on the last two acquisitions and then on the portfolio in general?
Yeah. Thanks, Hansal. This question keeps coming. It came in quarter two review also because the cost of debt in the market in general has come down materially. Optically, our cost of debt ticks at 8.5%. We believe in conservative management, so we've been fixing our cost of debt in the past and therefore, a lot of instruments are fixed. However, approximately 40 odd % of our balance sheet debt, approximately INR 8,000 crore, we can either refinance or prepay or some kind of other structuring way we can do. We are working on that. For example, we raised recently, just about a month back, one non-convertible debenture at a cost of debt of 6.85% quarterly on a 3.5 year period, which is about 7% annualized.
Today, we have opened up another issue for the upcoming acquisitions, which is at 7%-7.2% p.a. p.q. , which is approximately 7.25%-7.4% annualized for 4.5-5-year maturity. I would say the transmission is happening. The substantial reduction is happening. This is approximately 125 basis lower than our weighted average cost of debt. We are looking to refinance assets, and as and when we do, it'll result in benefit on that account. This, especially the capital that we are raising now, is going to go towards the acquisition that we are doing right now. For refinancing, we will keep focusing on opportunistic, I would say, tenor as well as facilities that allow us to reduce further.
As I understand, the FRV acquisition was done on a 100% debt, right?
Oh, yeah. FRV and PK, they both are not done yet.
They will be done.
They're under levered right now, will be based on debt. We'll be funding the acquisition out of debt.
Brilliant. Wow. That's a really lucrative acquisition then. Some idea on the PLF on the FRV. Would you have that handy by any chance?
Yeah, I think we can give you a little bit of past data.
Sure.
The generation is in the tune of approximately 20 crore units. That comes to approximately 18%-18.6%. Let's call it 18.5% CUF, but this is on a DC capacity. Okay. The DC capacity of the plant is 137 MW. Sorry, 135 MW, not hundred. If you were to try to calculate the math, it comes from 135 MW multiplied by 18.5%, multiplied by 365 into 24 into 4.43. That's the calculation. Yeah. You need to consider DC capacity.
Okay. The 4.43 you are mentioning is without the VGF?
Yeah. Actually, VGF is a one-time payment that gets paid.
Okay.
When a particular milestone is achieved. Right. In this case, some of the milestones are not yet achieved, so they will be paid over the period of next 12 to 24 months, as and when those milestones are achieved by the plant. Part of this we will have to share with FRV as and when announced. However, some part of it will also result into our accretion, which is additional to what we are making right now.
Okay. Keeping the VGF as a one time, it would be safe to assume that the rate per unit will still be INR 4.43?
Oh, yeah. INR 4.43 is annual payment. VGF is just one-time grant that gets paid.
I know.
Not one time. It comes in four tranches, 50% on first year in COD and then 10% every year. In first five year, VGF will get paid. VGF is over and above this.
Okay. Brilliant. Great. Thanks for the clarification. Congratulations and all the best.
Thank you.
Thank you. The next question is the follow-up question from the line of Mohit Thakur. Sorry, from Mohit Kumar from DAM Capital. Please go ahead. I'm sorry, his line got disconnected. We have the next question from the line of Sunil Kothari from Unique Investment. Please go ahead.
Thanks for the opportunity. Ours for these two new mechanism and certain thoughts, really commendable. My question is, just to understand, up to now, we were in transmission assets, and now we are little bit moving towards generation assets. Which are the risk factors you will be keeping in mind?
Yeah. Sunil , thanks a lot. I think we've already signed the agreement, so we can just describe what risk factors we have kept in mind. Also in Meghana presentation, it was there in the beginning what we are looking at. If you look at slide nine of our presentation. First is buying a good asset. Buying a good asset means that asset quality is good, constructed well, there are good tier one equipments in place, and therefore we have described some of the equipment name of manufacturers also. Because that makes the big difference in your productivity, in your generation, in your sustainability.
The conference is now being recorded.
Yes.
Yes. Sorry. Yes, that's the right question.
From a refinancing perspective, there are no structural issues. When you do a bond, it's a fixed price bond.
Yes.
It trades in the market. You can't buy them out cheaper, right?
True.
For example, if we issue a bond at 8.5% in 2019, okay, for INR 100, it is trading at INR 105 today, or INR 110.
Good.
Right?
True.
Now, we can't refinance that because that is a listed contract, right?
Yes.
We can only refinance loans or floating rate loans or something which is coming from maturity.
Good.
We need to just maintain that calendar schedule that as and when it comes to opportunity, we'll refinance. That's what we meant with refinancing.
In near future, maybe another six to nine months, do you feel we have reasonable good chunk which we can refinance at this lower rate?
Yes. We have sizable amount of loans which we have ability to refinance, yes.
Great, sir. Thanks a lot and wish you a very happy and healthy New Year.
Thank you.
Thank you.
Thank you. The next question is from the line of Mohit Kumar from DAM Capital. Please go ahead.
Yes. Thanks for the opportunity once again. Sir, is there a provision in the Power Grid -Koldam contract to buy out Power Grid?
Yes, Mohit, the provision is there. If Power Grid wants to sell and we want to buy, we can. That is not part of the plan. It's a 26% shareholding, so it's not material in size as well.
Okay. We can safely assume that the dividend will keep flowing to us, and as far as FRV assets are concerned, more likely, the return will come in form of interest. Am I correct?
Correct.
Second, sir, on the who is doing the O&M right now for the FRV asset. Is this the VGF component which is currently pending? Will it come to us, or it will go to the erstwhile owners?
There is a ratio-
How much the amount?
There is a ratio that we have agreed. Exact numbers we will not disclose. Probably we'll disclose on closing. A part of the VGF will accrue to us as well. In addition to that, there is also a GST claim. GST payment. Both GST payment and VGF, part of it will accrue to us, part of it will accrue to sellers. We will have an upside. However, the sellers need to deliver in a particular timeframe. That if it comes in 12 months, then you get X, if it comes in 24 months, you get Y. That is the formula that we have put in place, which incentivizes sellers to continue to work with us to get the claims, as well as there is an upside for us. It's a mix of both.
If I may ask, what is the kind of milestone which is still pending? Because this power plant was commissioned in January 2018 and 2019 respectively.
Right. For this power plant, there are some small amount of land, not just for power plant, the entire solar power park. Some amount of land mutation pending which is required by SECI to do the payment, which is the one milestone which is pending to receive the first VGF. We believe SECI has already given the waiver for the first VGF, now it is procedural. Obviously, COVID had slowed all of us down over last six, eight months. Now according to us, it is procedural. On GST side, there were certain petitions outstanding in CERC, which they have just before closing down, ruled in some other projects favor that the GST payment will be one time and will be paid by SECI. Both these things, the material, I would say, thresholds have been crossed. Now it is a matter of procedure.
How much is the amount pending as of now?
Meghana, would you have exact number of total GST and total VGF, please?
I don't have it offhand, Mohit. Let me just get back to you later.
Sure. Who is the O&M for FRV? Is it Sterling and Wilson? Do we intend to do ourselves going forward?
We intend to continue with Sterling and Wilson for O&M for now. While we have all the managerial capability, we will have our own project manager on site, but O&M contract will continue as is because they're doing a good job.
Lastly, on the funding of the FRV, I think there is a loan demand you're taking from FMO, IFC, and IREDA. What is the proportion in which they have funded the loan, and what is our plan going forward? I believe that some of the amount is sitting as a bond from FMO.
Oh, yeah. From our perspective, we are looking to refinance all of it. Bonds have completed three years in the country, so regulatory-wise, there is no hurdle. We would be looking to buy out the bond and continue with that. It will be entirely refinanced from our side.
From rupee loan, am I right?
Yes. Rupee loan. Correct. Or rupee bond. Basically rupee.
Yes, understood. Sure. I think we can raise money from bank also now, right? Our project is moving all fine? Okay.
Yeah.
Okay. Understood. Thank you.
Thank you.
Thank you. The next question is from the line of Khyati Mehta from TATA AIG. Please go ahead.
Hi, Harsh and Meghana. Thanks for taking my questions. Just wanted to have some color on the disclosure made yesterday regarding SPPL becoming one of the sponsors of IndiGrid.
Okay. Sorry, can you repeat the question? Your question was regarding the merger of SPPL and SPGVL?
Yes, then becoming a sponsor of IndiGrid.
Okay. No, this is just a corporate action that has taken place. SPGVL, a 100% subsidiary of SPPL, was the sponsor of IndiGrid when it was formed. However, Sterlite, SPPL and SPGVL have been merged now, therefore SPGVL ceased to exist. Therefore, the resultant company, SPPL, becomes the sponsor by virtue of merger. This is just a factual intimation on account of that. Does that answer your question?
Is it a co-sponsor because I think KKR was inducted as a sponsor, I think?
Yeah. Sorry. That continues. This is just a legal entity changing from Sterlite side. Nothing else have changed.
The stake of SPPL in IndiGrid around?
Sorry.
The holding of SPPL in IndiGrid would be how much as of now?
Approximately 23%.
Okay.
Okay.
That answers my question.
Thank you.
Thank you. The next question is from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.
Thanks for the follow-up, Harsh. Just one question. For H2 of this year, as well as for FY 2022, what is the extent of refinance that we can do, and what will be the average basis for introduction in interest cost on account of that?
Okay. That's a question which you need to derive answer to from our balance sheet. On our balance sheet, we have INR 1,435 crore of bond, which is getting refinanced in February 2021. Which is getting matured, we can refinance that. Other than that, we have a lot of project-level loans. We have project-level loan in GPTL, project-level loan in ENICL, project-level loan in OGPTL. These three put together would come to approximately INR 2,500-INR 2,600 crore. We will need to refer to the Quarter Two presentation. That three bank loans, plus the bank loan at IndiGrid level. Put together approximately INR 3,000-INR 3,500 crore, INR 3,000 crore of debt, which is at either SPV or at an IndiGrid level, we can potentially look to refinance.
At around 150 basis points reduction on an average.
That's something which you and I won't know. As and when we do it, we'll come to know actually. I mean, today, I can give you the exact public number which we have raised, that we are raising the debt now. I think the future one depends on when we are refinancing. That can be up, that can be down. That's something we'll have to wait for when we refinance. It can improve as well, it can worsen. Don't want to give you an upfront commitment on that.
Okay, what is the ballpark cost of debt on this INR 3,000 crore?
Okay. Ballpark cost of debt. I think we'll need to calculate that, to be honest with you. It'll be upwards of eight. That I can tell you.
Okay.
8.25 - 8.5 average.
Okay, understood. Are you also planning to now remove Sterlite as a sponsor now that their shareholding is so low and anyways KKR is the sponsor? Is there a procedure to remove the existing sponsor as a sponsor of the company?
No, factually speaking, there is a procedure to remove by a simple vote of unit holders. IndiGrid, the unit holders can remove. Provision is there. The manager board hasn't made any such decision or plan in place, so it would be premature.
Understood. Thank you. All the best, and wish you and the team a very happy new year.
Thank you.
Thank you. The next question is from the line of Sunil Shah from Turtle Star Portfolio Managers. Please go ahead.
Yeah. Thanks for the opportunity. Congratulations, Harsh and the entire team of IndiGrid on this acquisition. I have this one question, which is, I think in this acquisition, we are saying that our NDCF is going to be in the range of INR 40 crore-INR 50 crore. I think in the course of the presentation, you mentioned that a part of it will be distributed as dividend. Could you give us some sense on how much could that be and how will that go about?
Okay. I think we can give an approximate way to compute that because we have not yet acquired, it's difficult to predict from that perspective. Let's say, as we said, approximately INR 275 crore. This asset would throw anywhere from INR 42 crore-INR 48 crore of dividend per year on a 100% basis. Considering the ROE and 15.5% cost of debt. We only own 74% of this, so we get approximately, say INR 32 crore, INR 30 crore to INR 32 crore of dividend from this asset, right? Divide that by number of units, which would come to about what? Half a rupee, somewhere around that. Half a rupee or INR 0.60 or something. At a higher level, that's what the math is. Right? We'll need to figure out accounting and how that gets structured and all that eventually.
On a long-term basis, there's about INR 33 crores of dividend on a INR 58.5 crores of unitholder base.
Right.
That's the ratio one can look at.
Does it mean that the solar assets that in future if we acquire, there could be a window through which, this kind of dividends could accrue in future as well, depending on the structure. I think in transmission lines, clearly it's not a dividend payout that you can give. In solar assets, that possibility remains.
No, you mixed the two assets. The dividend that we spoke about is for PKTCL, which is a transmission asset, but a cost-plus transmission asset, so you get a post-tax return.
Oh, okay.
For solar, it will be interest. It has nothing to do with the sector. It's to do with the cap structuring for that asset.
Got it. Okay. There is one more point, which is, I think there are some new discussion going around about going forward in future, government is contemplating some policy wherein if the distribution company is not able to deliver the power, there will be a penalty which will be levied. Does that anyway create any kind of business risk for us?
No. First is, that is for distribution licensee. We are a transmission licensee, so it doesn't create on us directly. Indirectly, it creates on our customers, which is distribution companies. See, all these structural measures that you keep hearing about is towards overall improving the sector efficiency. Right? While it may look like penalty is there, but eventually the government is I mean, government is only providing liquidity also to meet that penalty, on the other hand. The idea is to create an infrastructural environment so that distribution companies become more efficient. That the overall sector becomes more efficient. In the longer run, I think these will result into rather positive environment for the sector than the negative. In the shorter term, anyways, we don't get directly impacted.
Okay. One last question, and this is, we are talking about assets that we have acquired, but if I can get an update on the two framework assets which are in the pipeline, that is NER and KTL.
Yeah.
Could you just update us in terms of what is the status? By when do we think that those could materialize if it should be?
Yeah, sure. NER project is under construction, I think it is at the last stages of construction. There has been obviously a post measure on account of COVID and all other aspects, there's five, six months delay on that project. We believe, at least what we have been informed is that the project will be commissioned by March, therefore, we have in parallel started diligence for that. Okay. Exact acquisition date, we don't know, but maybe Q4 or next six months, we'll look to close this acquisition six to nine months as and when the project gets commissioned. It looks, at least what we've been informed is that the project is at good stage, we should be able to look at it in six months' time. That's one can factor. On KTL, it is substantially delayed, one part of it.
50% of KTL is commissioned and it's revenue generating. However, the other 50% is substantially delayed, probably 12 to 14 months maybe for that. It will be slightly delayed than earlier planned.
By quarter four of FY 2022, we expect that we could get good clarity for both of them.
Quarter four of FY 2022.
Acquisition.
15 months.
We should be done with.
Yeah. 15 months is a good clash. Correct. Yeah.
All right. Thanks for all this clarification, and good to hear Meghana on the call as well. Thank you so much.
Thank you.
Thank you. Ladies and gentlemen, as this was the last question for today, I now like to hand the conference over to Mr. Sumit Kishore. Thank you. Over to you, sir.
Thank you, Harsh, Meghana, Jyoti. On behalf of Axis Capital, thanks a lot for giving us the opportunity to host this call. Do you have any closing remarks, please?
Yes, I think, we've been just on a track of delivering our strategy. This is a stable business with predictable returns. Now IndiGrid has good access to both capital as well as management team and asset base. Therefore, we are in a very good position to execute our strategy, which was focused on long-term contracts, low operating risk, stable cash flows, which is what we are executing. I would reiterate, I think a year before, there were a lot of questions around solar. I would reiterate that our focus is to go conservative, then aggressive, and therefore we've provided outer caps of 20%-25%. However, we don't necessarily are running to achieve those caps. We may be operating at a much lower level.
We are looking to acquire, monitor, and generate the yield before we jump onto, I would say, growing materially on especially a new sector. It took us, I would say about a year or 14 months from starting to think about it, to evaluate, put together risk framework, build capability, and finally execute. I would say that we will just remain conservative and focus on the fundamental of the business, which is to get predictable, stable cash flows and generate yield for investors. I think a lot of you have been tracking us since the beginning. Thanks a lot for all the right questions which nuances on the business, which allows you to evaluate the business better. Thanks a lot for participation, and wishing you all a Merry Christmas and a Happy New Year.