Press Release

December 02, 2016 | Mumbai

CRISIL assigns its first rating on an Infrastructure Investment

Trust
Assigns CCR AAA ratings to India Grid Trust; an Infrastructure Investment Trust
established by Sterlite Power Grid Ventures Ltd
CRISIL, today, assigned its first rating on an Infrastructure Investment Trust (InvIT), India Grid Trust (IndiGrid),
established by Sterlite Power Grid Ventures Ltd (SPGVL). The trust, which will list on stock exchanges, proposes
to acquire two stable, revenue-generating transmission assets from SPGVL. Enabling regulations with respect to
ownership structure and tax efficiencies in distribution of cash flows have created an enabling environment for
InvITs, thereby making them a reality.

Says Mr. Pawan Agrawal, Chief Analytical Officer, CRISIL Ratings: InvITs are innovative new vehicles
that can play a crucial role in meeting Indias huge infrastructure requirements, estimated to be Rs 43
trillion over the next five years. They can help the infrastructure developers monetize their existing
revenue-generating assets, thereby releasing their capital for funding new infrastructure projects, and
shoring up financial flexibility. Besides, InvITs also help in widening the set of investors, and once listed,
provide regular source of capital to the sector.

Proceeds from listing of InvITs will enable deleveraging of operational assets, thereby improving their credit
quality and enhancing their viability. Such deleveraging will also be beneficial to the banking sector, not only
through release of funds for lending to new infrastructure projects, but by also improving their asset quality.

Globally InvITs are positioned as high-dividend-paying investments suitable for investors looking for long-term,
stable cash flow with moderate capital appreciation. Investors of InvIT will draw comfort from the favourable tax-
norms including tax-exempt dividend income; no capital gains tax if units are held for more than three years and
sold through stock exchange; and withholding tax at 5% for interest income to non-residential unit holders.
Further, the pass-through structure of InvITs mandating distribution of at least 90% of net-distributable cash flows
and nil dividend distribution tax, results in maximization of cash flows for both investors as well as sponsors.

CRISIL has also released its criteria for rating of InvITs and the same can be accessed at the following link:
http://www.crisil.com/Ratings/Brochureware/RR_ASSES/CRISILs-rating-criteria-for-REITs-and-InVITs.pdf.
CRISILs rating approach for InvITs focusses on assessment of quality of the underlying asset portfolio and cash
flows which are the key determinant of business risk profile. Further, debt service coverage over the life of the
instrument and leverage of InvIT (which has been capped at 49% of the InvITs value under SEBI regulations)
are critical to assess the financial risk profile. CRISIL would also look at the experience of investment manager
and the risk management policies of the InvIT.

Says Mr. Sudip Sural, Senior Director, CRISIL Ratings: The corporate credit rating of CCR AAA is a
reflection of stability of cash flows of the two underlying operational transmission assets that IndiGrid
proposes to acquire. Besides significant deleveraging at the asset level is expected to lead to a strong
debt service coverage ratio at the consolidated level. We also expect that distribution of cash flows from
IndiGrid to its unit-holders will take place only after servicing of external debt thereby lending support to
the financial risk profile
 India Grid Trust
(An infrastructure investment trust established by Sterlite Power Grid Ventures Ltd)

Corporate Credit Rating CCR AAA (Assigned)

CRISILs corporate credit rating on India Grid Trust (IndiGrid; an infrastructure investment trust [InvIT]) reflects
stable revenue of the operational special purpose vehicles (SPVs) to be acquired by IndiGrid, cash flow stability
under the point of connection (PoC) pool mechanism, and a strong financial risk profile due to de-leveraging of
these SPVs. These strengths are partially offset by moderate operations and management (O&M) risks that the
underlying assets of the SPVs are exposed to.

For arriving at its rating, CRISIL has combined the business and financial risk profiles of IndiGrid with the SPVs
which it proposes to acquire: Bhopal Dhule Transmission Company Ltd (BDTCL) and Jabalpur Transmission
Company Ltd (JTCL). This is because of IndiGrids 100% shareholding in these SPVs and managements
intention to support them in case of any exigencies. Furthermore, there would be minimal structural subordination
of cash flows as no debt is expected to be raised at IndiGrid level and regulations enable the cash generated by
the SPVs to be up-streamed to the InvIT with minimum leakages. SPVs under the InvIT have to mandatorily
distribute 90% of their net distributable cash (post servicing of their debt) to the InvIT, leading to highly fungible
cash flows. Furthermore, as per extant regulations, the cap on borrowing of the InvIT has been defined at a
consolidated level (equivalent to 49% of the value of the InvIT assets).

The revenue of BDTCL and JTCL (which operate as interstate transmission [ISTS] licensees) is supported by
assured power offtake under their respective transmission service agreements (TSAs), which ensures payment
of stipulated tariff subject to achievement of normative line availability of 98% annually. If cumulative availability
on an annual basis is below the normative level, revenue will reduce proportionately. Revenue is delinked from
demand, supply, and volatility in the price of electricity. Moreover, the reasons for which a line may become
unavailable, such as unchecked vegetation growth, lightening, fog and high ambient temperature, are easily
rectifiable, which minimises outage time. The outages due to extreme weather conditions, cyclones or excessive
lightening are usually classified as attributable to Acts of God and do not impact the line availability of the SPVs.
The line availability - at about 99.0% since commissioning for both the SPVs, which is in sync with the sectoral
average - is expected to be maintained at over 98% over the medium term. Furthermore, IndiGrids plan to start
with only two operational and stable transmission assets insulates it from the implementation risks associated
with under-construction projects, and also from the performance and revenue variability risks associated with
riskier assets. Hence, acquisition of future assets by IndiGrid will be a key rating sensitivity factor.

BDTCL and JTCL benefit from the cash flow stability under the PoC mechanism for billing and collection for ISTS
licensees. Under this mechanism, Power Grid Corporation of India Ltd (PGCIL; rated CRISIL AAA/Stable/CRISIL
A1+) acts as the central transmission utility and collects the monthly transmission charges from all the designated
users of the ISTS on behalf of the licensees. Thus, counter-parties of ISTS licensees are diversified across the
base of all the designated ISTS consumers in India. PGCIL has demonstrated strong collection efficiency over
the past four years signifying its high bargaining power with the designated ISTS customers, despite their weak
credit risk profiles. BDTCL and JTCL will continue to benefit from the strong collection efficiency of PGCIL and
diversification of counterparty risks under the PoC mechanism.

IndiGrid is expected to have a strong financial risk profile because of zero debt at a standalone level and
significant deleveraging at both the SPVs. The proceeds from the listing of IndiGrid (to be infused through non-
convertible debentures [NCDs] in BDTCL and JTCL) will be used to repay external debt as well as unsecured
loans from SPGVL in these SPVs. Consequently, the external debt at JTCL is expected to reduce to zero from
Rs 10.15 billion at present, and at BDTCL to Rs 10.00 billion from Rs 15.29 billion at present. Thus, on a
consolidated basis, the debt at IndiGrid will reduce to Rs 10.00 billion, in comparison with the combined debt of
Rs 25.44 billion in BDTCL and JTCL at present. With this remaining Rs.10.00 billion debt, the debt to value of
IndiGrid, is expected to be much lower than 49% (stipulated in regulations), even at book value of IndiGrid. This
debt is also expected to be refinanced resulting in lowering of interest cost to 8%. With the significant
deleveraging, the debt service coverage indicators, most importantly the debt service coverage ratio (DSCR), will
improve significantly. CRISILs rating is not an opinion on the likelihood of timely payment of principal and interest
on the NCDs infused by IndiGrid in these SPVs.

The financial risk profile is also supported by the expectation that distribution of cash flows from IndiGrid to its
unit-holders will take place only after servicing of external debt (which is expected to be on a quarterly basis).
This will ensure build-up of sufficient liquidity at the time of payment of interest and principal on the external debt.
However, there are moderate O&M risks as maintenance of high line availability is critical to ensure stability in
revenue. Although the O&M expense forms a small portion of the revenue, improper line maintenance may lead
to revenue losses and weaken the debt repayment capabilities of the SPVs. However, these risks are mitigated
by the low technical complexity and the routine nature of the O&M activity, coupled with appointment of an O&M
contractor by the SPVs.

About the Company

IndiGrid was settled by Sterlite Power Grid Ventures Ltd (SPGVL) on October 21, 2016 as an irrevocable trust
pursuant to the trust deed under the provisions of the Indian Trusts Act 1882 and registered with Securities and
Exchange Board of Indias (SEBI) as an InvIT on November 28, 2016 under Regulation 3(1) of the InvIT
Regulations. IndiGrids Initial Portfolio Assets comprise BDTCL and JTCL, which are held by Sterlite Grid 1 Ltd
(SGL1).

SPGVL is a subsidiary of Sterlite Power Transmission Ltd (SPTL), which is a part of the Sterlite group. SPTL
holds 72% stake in SPGVL, with the remaining 28% being held by Standard Chartered Private Equity. SPGVL is
the holding company for the groups 10 transmission SPVs, which it holds through intermediate holding
companies: Sterlite Grid 1 Limited (SGL 1), Sterlite Grid 2 Limited, Sterlite Grid 3 Limited, and Sterlite Grid 4
Limited.

IndiGrid proposes to acquire from SPGVL a 100% stake in SGL 1, which holds 100% stake in the two SPVs,
BDTCL and JTCL. SGL 1s existing stake in East North Interconnection Co Ltd (ENICL; rated CRISIL
AAA(SO)/Stable) will be offloaded to SPGVL. SPGVL will, in turn, take atleast 15% stake in IndiGrid, with the
remaining expected to be diluted in favour of investors as a result of listing. Proceeds raised through the listing
of IndiGrid will be infused through NCDs in each of the SPVs and will be utilised to part-repay external debt and
also repay unsecured loans from SPGVL in the SPVs.

BDTCL's transmission project is for system strengthening, and involves the establishment of 765-kilovolt (kV)
single-circuit lines in the Vadodara-Dhule-Aurangabad, Gujarat-Maharashtra, belt and the Indore-Bhopal-
Jabalpur, Madhya Pradesh, belt. The project involves a total line length of about 944 circuit kilometre (ckm) and
construction of two sub-stations at Bhopal and Dhule. Out of the eight elements of the project, six were
commissioned by December 2014, ensuring 62% revenue generation. The remaining two were commissioned in
June 2015.

JTCLs transmission project is for system strengthening, and involves the establishment of a 765-kV 757-ckm line
from Dharamjaygarh, Chhattisgarh to Jabalpur, Madhya Pradesh and a 765-kV single circuit 235-ckm line from
Jabalpur to Bina, Madhya Pradesh. The Dharamjaygarh to Jabalpur line was commissioned in September 14,
2015, and the Jabalpur to Bina line in July 1, 2015.
For further information contact:
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CRISIL Limited CRISIL Limited
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tanuja.abhinandan@crisil.com
For Analytical queries:
Jyoti Parmar Manish Kumar Gupta ratingsinvestordesk@crisil.com
Media Relations Director - CRISIL Ratings
CRISIL Limited CRISIL Limited
D: +91 22 3342 1835 B:+91 124 672 2000
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jyoti.parmar@crisil.com

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Last updated: April 2016

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