Power Grid diluting stake to raise funds for expansion

► Move surprises analysts as the company has enough cash already     

► Fears of a July 2012-like grid failure prompt the PSU to plan strengthening measures

The government-owned power transmission utility Power Grid Corporation of India (PGCIL) is planning to sell 694 million new shares, or 15 per cent of the existing stock, to fund the strengthening of the transmission system and pre-empting blackouts in the country. Though the public sector unit is not facing any issues on cash front, it wants to trim its equity to generate the required cash for building a robust transmission system.

The Gurgaon-based company last month sold `3,970 crore of bonds and now it plans to offer new shares to finance the additional investment. The company had suffered lot of bad press last year after the network collapse that had left more than half the nation’s population without electricity. Power Grid will inject additional 10 per cent over and above the already earmarked $16.5 billion investment to set up a system which is fool-proof. About `10,000 crore will be spent in the five years till March 2017 to complete the projects, Chairman, PGCIL, R.N. Nayak told mediapersons recently.

The company’s move to reduce equity has surprised industry experts and analysts. It had earlier said that it was ready to change its 70:30 debt-equity mix to 75:25 and a share sale was not on cards in the year ending March 31. The company is sitting on cash and equivalents of about `2,870 crore and industry experts had expected it to use this cash to meet its funding requirement.

“Although there had always been an overhang of a possible equity dilution, we didn’t expect it to happen this year. They don’t have a cash crunch,” says Anubhav Gupta, an analyst at Kim Eng Securities Pvt. in Mumbai. The announcement of share sale has also surprised analysts as concerns to avoid a large-scale grid failure had to an extent been addressed by putting in place stringent restrictions. The public sector company has already prepared a roadmap to double its transmission capacity and invest in systems to avoid a similar blackout which had forced factories to shut, chocked transport and created havoc in the investor community both within and outside India. Penalties haven increased to discourage states from drawing power in excess of their allocations, a breach which was probably the reason behind the northern grid collapse last year.

However, outages continue to plague large swathes of the country. “That’s not going to change in a hurry. States that now risk heavier penalties for overdrawing power, are simply not buying enough,” says Debasish Mishra, partner and head of energy practice at Deloitte Touche Tohmatsu India Pvt. “At the same time, we have come a long way since last year’s blackouts… grid discipline has increased significantly and chances of a second such blackout are really thin,” adds Mishra.

Planned investment

The transmission behemoth would pump in `2,220 crore in the current financial year ending March 31. The company had earlier planned to invest `2,000 crore in the current financial year. It has so far raised `8,000 crore of debt in the year started April 1, Nayak said. The proceeds of the share sale, which is estimated at `6,340 crore based on the current share price, would be used to fund the equity portion of its investment plan for the next three years, he said.

Power Grid plans to expand the network to 140,000 circuit- kilometers by March 2017, he said. The company is developing 11 high capacity transmission corridors to haul electricity from generation projects spread across more than eight states, as per official statement. The company is also building a transmission system for Tata Power, which has set up a 4,000 megawatt project at Mundra in Gujarat, and Reliance Power, which is building a similar sized plant at Sasan in Madhya Pradesh.

“Power Grid’s project executions are timely and growth is stable. A change in the negative sentiments about the power sector can trigger an upgrade for the stock,” Gupta of Kim Eng Securities said.

Transmission loss

More than a quarter of the electricity generated in the country is lost in transmission because of theft and dissipation through wires. Distribution utilities, unable to retrieve their costs from government-regulated tariffs, accumulate debt and cut purchases.

The country plans to spend 13.73 trillion rupees to expand and upgrade its power systems by March 2017, with much of the investment coming from generators including state-owned NTPC Ltd, Tata Power Ltd. and Reliance Power Ltd. India currently has a capacity to generate almost 226 gigawatts, plans to add 118 gigawatts of capacity during the period, including 30 gigawatts of renewable energy, according to the Planning Commission.

                                                                                                                 

                  InfralinePlus Magazine (Editorial Team)