Saturday Special: Power Grid's InvIT IPO
Rs. 7,700 crores worth of it. Big sum. What's going on?
Power Grid is the first Public Sector Undertaking (government company) to come up with an Infrastructure Investment Trust (InvIT)1 IPO.
So, how does this exactly work out for Power Grid?
Got it. So, what exactly are they selling, and why?
You see, the government needs money to fight the pandemic and revive economic growth. To help the government raise money, Power Grid will be selling five of its infrastructure assets to smaller investors.
The company will use this money to repay its debts, lower its interest cost, and increase its profitability (and mostly transfer it to the government via a dividend).
So, will there be an impact on its share price too?
Yes. There already has been. As soon as this announcement was confirmed, the stock went up by ~4%!
But, why go up now? Why not when the transaction actually happens and money really flows in? Because the market "prices-in" or "discounts" any financial information that will have an impact in the future.
That’s just how the stock markets work. Constantly trying to price in every piece of information that comes in. Relentlessly. These days, there are even social media “listening” tools that are deployed to get a sense of market mood/sentiment.
Anyway, what do you think about this deal? Should the government sell assets to meet expenses?
And, what happens when it runs out of assets to sell?
Food for thought. Until next time…
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What is InvIT?
InvIT is like a mutual fund. A mutual fund invests in stocks of a lot of companies and is managed by a portfolio manager.
Similarly, InvIT invests in different infrastructure projects (like making roads, metros, pipelines, etc).