Indigrid Infrastructure Trust (540565) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to India Grid Trust Q1 FY '21 Results and latest development conference call hosted by Edelweiss Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Swarnim Maheshwari from Edelweiss Securities. Thank you, and over to you, sir.

Thank you, Nirav. Hello everyone. I welcome you all on India Grid Trust Q1 FY '21 results and latest developments conference call. Thanks for giving us a fortune to host this call. I hope all the participants and their near ones are in the best of their health. From the management today, we have with us Mr. Harsh Shah, CEO of India Grid, and he is representing the Trust over there. So I would like to hand over the call to Mr. Harsh for his opening remarks and post which we can have a detailed Q&A. Over to your, Harsh.

Thank you, Swarnim. I hope you can hear me loud. Is it fine?

Yes, sir.

Okay. Thanks. So thank you, everyone, to join us today evening. I'm just cautioning in case our lines dropped, we will dial back soon. The networks haven't been great in Mumbai. So in case the lines drop, Chorus team will connect me again and we'll restart from where we dropped off. So welcome, everyone, on our call. This is the quarter 1 call for FY '21. And we have just finished our Board meeting and published the results today. I will be taking through the -- our investor presentation, which we have circulated today evening. And after that, we will take through question-and-answer subsequently. For the document sake, today we have published investor presentation, results sheets, valuation reports and other details. So in case you have questions, we can refer to those documents subsequently once the investor presentation is finished. On quarter 1, Slide #3, as we say, we are going to start with our vision and journey. And on Slide #5, as we said, we -- our vision is to become the most admired yield vehicle in Asia. We are focused on our business model with long-term contracts, low operating risk and stable cash flows, focused on value accretive growth, deliver predictable DPU to our investors and follow our optimal capital structure. This has been our vision, and we believe we have been living that in the next slide as you can see. IndiGrid is India's only power transmission yield platform. And some of the statistics that we have provided showcases our AUM is about INR 12,000 crores today with 20 lines and 830 kilometers, 4 substations and 7,700 MVA of transformation capacity. We are rated AAA and our residual contract life is 32 years. Our key highlights for quarter 1 FY '21 is on Slide #8. Before I go through the key highlights of Slide #8 on quarter 1, I would like to also sadly inform our investors what we have already done to the exchanges that one of our Board members, Mr. Shashikant Bhojani lost his life last month. He had been a key member of our Board since the IndiGrid was conceptualized, and he has played a very crucial role in formation of IndiGrid as well as building IndiGrid from where it started and where it is today. We are sad to lose him and I think it will be difficult to fill his gap for us. This happened in quarter 1. And therefore, before we start the business presentation, I thought I would pay my tributes to Mr. Bhojani. Coming to quarter 1 highlights, I think our financial track record has remained robust. Our EBITDA has grown 74% year-on-year basis, the quarterly EBITDA. And this is backed on the asset that we had acquired last year. Our distribution payout, we have announced at INR 3 a unit, including in the COVID uncertainty times, and we are paying INR 3 a unit entirely as interest. Our net debt to AUM remains at 50% and significantly below the 70% cap put in by semi-regulations. Our ratings by all 3 rating agencies were confirmed after COVID times around April and May month, so we remain AAA. There are 2 announcements that we did during the quarter, 1 for acquisition of the Jhajjar KT Transco Private Limited from Techno Electric and Kalpataru. That share purchase agreements are signed and we are awaiting regulatory approvals for that. We also took approval for Gurgaon Palwal Transmission Limited from our investors to acquire. On COVID times, I think the most important point for us was that there's been no material impact on health of our employees and partners who work with us. That have been 0 COVID incidents on our portfolio, including with our vendors. In general, power demand slowed down for the first 2, 3 months, but that has recovered and no material impact is to be seen. We'll cover that in the next slide. And the collection track record, while it went down in quarter 1, it is starting to recover, and we'll discuss those numbers in detail. On the regulatory side, there are 2 new updates. SEBI issued 2 circulars, 1 for induction of a new sponsor in case somebody wants to become a sponsor or an investor who wants to cross the shareholding beyond 25%. And the second part of the circular covered if a sponsor wants to reclassify themselves as sponsor after the due locking up for 3 years, what is the process to be followed. So these are the regulatory evolution that has taken place in quarter 1. On Slide 9, I would just reiterate on the COVID impact. On the right hand side is the data published by POSOCO which is our National Load Dispatch Center. As you can see, March and April were extremely low, both in terms of peak demand in the chart above, and overall energy consumption, which is energy met in the chart below. However, as we can see, once the lockdown is opened up, end May, early June, we have seen electricity demand catching up. And if you just track the first week of August or the last week of July data over here, both peak demand as well as energy consumption has slightly crossed what was there in the same months in 2019. And we will continue to monitor this on a month-on-month basis to see if there is a recovery in terms of electricity consumption. While just to note that our transmission tariffs are not linked to power flow and based on availability of transmission elements. However, in general, for the health of the sector, it is important that power demand is a good metric to be set. What you've seen have shared also the impact on our collection, I believe this is a question which was asked several times in the calls before. So we have showcased the collections that we have received from the people over the last 4 months. In April, which was the peak of the lockdown, we received 40% collection, in May 58%, in June 84%, so gradually, it has increased. And overall, on a quarter on basis, we have received about 60% collection, which we had thought about and disclosed that we would be expecting about 50% collections in quarter 1. And in July month, first month after the lockdown opened up, we have reached 104% of the collections. We believe it's a good sign of recovery. However, we would like to monitor this number on a month-on-month basis, on a quarter-on-quarter basis, and we will remain conservative until that time. The next slide is on operational highlights, on Slide #10. As you can see from our track record, our availability for most assets have remained at the maximum and we have owned incentives. On the safety side, we have ensured that 100% safe man hours have been achieved. We are investing a lot in cultural and behavior based safety enablement for our employees as well as our partners. Considering that we operate in an electricity environment in a light grid environment, safety is something which is of highest order of priority for us. Besides safety and training for that, we have also shared some of the critical parameters for operations and reliability, which includes trips per line. On a quarter-on-quarter basis versus last quarter same year, it has improved marginally. And you would look to follow the best global standards to achieve better reliability in this regard. On COVID, especially, we are putting additional efforts to ensure that all people, including our partners and contractors and workers on the ground, about 600 in all, remain safe and ensure 100% compliance with statutory guidelines. Including that, our subscription facilities have been substantially quarantined to ensure that those people who operate the substation remain safe. On Slide #11 is the financial highlights of this quarter. Our revenue and EBITDA both have substantially increased versus the same quarter last year and this is on the back of the acquisitions that we completed last year. Along with that, our DPU, as I said earlier, we are paying INR 3 a unit as interest. This is our tenth consecutive distribution at INR 3 a unit. And since listing, we have distributed now approximately INR 36.56 a unit to investors. Our DSO days are at 101 as we discussed our collections were low. And therefore, we have stretched DSO days due to COVID delays in quarter 1 collection. However, quarter 2 July month has been encouraging and we'll continue to watch that number. The Slide #12 describes our EBITDA to NDCF bridge. So on the extreme left is the income and after expenses at SPVs we have reached the EBITDA of INR 331 crores. Of that, SPV level interest is minus the working capital has improved and would describe that's largely because of factoring. We have chosen to sell receivables of quarter 1 which is called factoring to ensure that we are able to maintain our NDCF as well as DPU for quarter 1. Our loan repayment of INR 5.7 crores has taken place and we've created reserves at SPV with the factoring support to ensure that we can survive if there is further delays of collection. NDCF seen by SPVs to IndiGrid is INR 253.8 crores. We have majority of the loans at IndiGrid where we have paid INR 80.7 crores of interest and there are marginal expenditures done at IndiGrid as well. At IndiGrid NDCF control we have INR 191.5 crores of NDCF. Of that, we have created reserves of INR 16 crores and decided to pay INR 175.4 crores as distribution, which is equivalent to INR 3 a unit. On Slide #13 is a slide which we presented last time as well. There is no material change versus last quarter to this quarter, except a few borrowings that we have done this quarter. We are, as I mentioned earlier, still rated AAA by all rating agencies. Our weighted average cost of debt is 8.6%. We have reached 50% net debt to AUM. And as per SEBI regulations after crossing 49% our level of disclosure have increased, and therefore, you will see valuation report and other reports being available on a quarterly basis going forward. We have a substantial amount of cash balance. That cash balance is towards which we have for distribution for quarter 1. About INR 138 crores is also for DSCR which is a Debt Service Reserve Account and the subsequent cash which we have borrowed for subsequent acquisitions. On Slide 14 is just a performance track record since we listed the things that we have presented on a quarter-on-quarter basis. As you can see, there are 3 important points on the side. One is the beta. We have remained a very low beta and low volatility stock in comparison to other comparable indices or stocks. We have distributed as a total return 42% to our investors, out of which 34% is largely coming as a DPU, and the 9% is a price change until 31st of July that it represents. As you can see, there is substantially higher than comparable indices and investment alternatives to investors. And therefore, we believe that with a low volatility and stable return, we will continue to provide superior returns to investors. Slide 15 is about recent development, for which we recently announced disclosures on this week. There was an agreement between Esoteric II which is an affiliate of KKR and SPGVL to transact on 15% of IndiGrid units. This agreement got automatically expired in July 2020 on the long stop date as the transaction could not be consummated by that date. In light of the above, Esoteric II has also withdrawn its intent to be designated as a sponsor of IndiGrid. However, on the right hand side, we have stated some facts that equity capital required or the significant asset growth that we have foreseen, especially the framework assets has already been raised by IndiGrid and that is also one of the reasons that IndiGrid net debt to AUM is just 50%. Esoteric II remains still the largest unitholder at IndiGrid and KKR owns 60% of the investment manager and has also contracted to increase it to 74% by May 2021. The next slide on Slide 16 is just a comparable with global yield platforms and how IndiGrid positions itself, both in terms of size and yield as a spread over a 10-year GSEC of the local GSEC and I believe it offers a good risk return reward to investors in comparison to global indices and global opportunities to invest in such yield platforms. Slide #17 is just described that data into a tabular manner and we can address some questions that are there on that. Looking ahead, I think outlook for FY '21, our focus remains on providing superior returns, stable DPU and growth in NDCF. We believe we can achieve that if we execute on a portfolio growth strategy to acquire GPTL, KTL and any of our projects for which we have done framework asset. Also evaluate selective solar opportunities with central counterparties for which we took approval and create a pipeline of transmission projects beyond framework assets as well. While we do this, we will ensure that our focus on balance sheet strength is maintained. Considering the fact that we are going through a COVID environment and slightly uncertain and unpredictable scenarios can pan out, we would look to maintain sufficient cash balance and working capital lines. And also we'll aim to diversify our debt sources as we look to acquire other projects. Our focus on operations will remain as one of the most important priorities. We'll look to deliver 99.5% availability across the portfolio. As commented in our quarter 4 presentations, we'll look to invest in technologies, which enable better asset management including digital asset management, selective analytics and a better emergency preparedness. We look to increase our focus on ESG initiatives that we kicked off in quarter 4. And as we do that, we'll follow that we ensure that world-class EHS standard and O&M practices are followed on our portfolio. We'll continue to work with industry participants and regulators to ensure that overall market for InvIT and IndiGrid per se grows and there is increasing investor awareness about it, also regulatory awareness about it. And we believe that there are few policy initiatives, which we have been publicly pursuing, which is to allow IRDAI and PFRDA to enable insurance companies and PF companies to subscribe to debt securities of InvIT, we'll continue to pursue that and we'll continue to look if there is an opportunity for reducing the lot size to single unit. While this was approved last year when 5 lakh trading lot reduced to 1 lakh trading lot by SEBI. However, it was not made through at a single unit. We would look to focus on that as well with regulators. With that, I would actually stop the initial presentation from my side because I recognize that there is going to be questions around several points, so that there is enough time for the investors to ask questions on critical matters. So Swarnim, I would request you to take over and open up lines for Q&A.

[Operator Instructions] First question is from the line of Mohit Kumar from IDFC Securities.

Congratulations on the good strategy as well as the numbers. My first question pertains to the fact of the responses have not -- responses generally not happening. And how does it affect the business? And do you think that the Sterlite or the sponsor are still looking for an exit? Or is it -- or can you comment upon that? And secondly, on the existing manager, does the KKR is still on the part to acquire the another 14%? Or is there any other some kind of different understanding?

Okay. Thanks Mohit. So to answer your first question on the recent development. I think 1 is there is no impact on the existing business that we own on account of any of this. This is between the 2 shareholders where the fact has not booked. So I would say that there is no impact on the business at the moment. Will Sterlite look to exit is something a question probably better directed to Sterlite directly -- subsequently. And on the investment manager side KKR has retained 60% of the manager and therefore majority. And at the moment, I'm not aware of any other developments. And the contract, it is a contracted transaction between both parties to transact on 14% on a specified date in future.

And secondly on the [Technical Difficulty] how the sales have behaved from March 20 to June 20 in amount terms and can you quantify that amount? And to that, is there any change in plan for acquisition of the other 2 assets, which we are planning to acquire by the end of FY '21 somewhere? Did the time line change?

Okay. So I think first is on the receivable side. So I think we have approximately and I don't have months on months exact crore number, but we have approximately INR 120 crores of monthly revenue, right? And therefore, we have collected in quarter 1, approximately 60%, which is approximately INR 220 crores of INR 360 crores, right, an approximate number in terms of cash collection, which is about 60%. And I'm not counting July month in that right now. So that's a quarter 1 collection. The second question that you asked was on acquisitions. Can you be specific which acquisitions you are trying to ask?

Large acquisition which you're from Sterlite?

Okay. So I think -- sorry, there are not 2 acquisitions from Sterlite. There is 1 acquisition, which is with respect to GPTL, which is announced, and we have taken investor approval with respect to that. We don't have a signed SPA at the moment. So as and when we reach the closure of that, we'll make the necessary announcement. I believe that we have made fair amount of progress in the diligence, and that is why we came to investors to take approval for that acquisition. So that is the only acquisition that is for which we have announced the acquisition and taken investor approval. The other 2 projects, which is KTL and NER are both framework projects where IndiGrid and Sterlite Power has an agreement on. We are monitoring the project progress of both projects. Both the projects have not achieved commissioning at the moment. And therefore, as and when they achieve commissioning, we'll look to start the diligence and follow the process mentioned in the framework agreement.

Next question is from Sarvesh Gupta from Maximal Capital.

So first thing, this long stop date, which has expired between the 2 parties. So is it because Sterlite wanted to transact at a higher price because it has moved from the initial price to the current market price? So why the long stop date has not been extended for KKR by Sterlite?

So this is Kunal, right? Sarvesh, sorry. So Sarvesh, I think this is a question which I'm not party to, right? The decision is between 2 shareholders, independent shareholders. And therefore, I do not have an answer to that. And probably you can address it separately to Sterlite and KKR beyond the call. But at the moment, I'm not aware of that.

But this is very important for the unitholders to understand who is going to be the sponsor because we don't know as of now if KKR does not want to become a sponsor or they haven't been given an opportunity?

So Sarvesh, what I can explain is that in which and, let's say, specifically for IndiGrid, it is a manager driven entity. And most of the decisions as well as business is run by the manager, investment manager, where KKR is majority. And it's a professionally managed entity. On the sponsorship, I think the only privilege, if I must say, of becoming a sponsor and remit regulation is to be able to own more than 25% of particular assets. Yes, at the moment, KKR has withdrawn the application. And therefore, we do not have a financial sponsor who can own than 25%. However, on the business, will that have an immediate material impact. I believe, as we said today, the business is as usual, right?

But it should have been Sterlite's responsibility to get this approval for change of sponsorship, right? I mean, I could not understand why we have come to this impasse. Because right now, there's so much uncertainty because -- so what will KKR, for example, do with holding 60% in the investment manager, which is having revenues of few million dollars if they are just a financial investor in the overall setup. So there are too much of uncertainty regarding the who is going to be the sponsor because technically now Sterlite can also sell because their lock-in period has ended. So if they sell, then what is their role? Why are they in project management? Why is KKR on the investment manager? So I think I personally felt that it should have been the responsibility of Sterlite who has transacted with KKR, on which basis funds have been infused, on which basis all the acquisitions have been done primarily for Sterlite promoter entity assets. So this clarity needs to be given to the unit shareholders because it is very important for us.

Yes. No, Sarvesh, I understand. So I think just to clarify, the manager controls the InvIT, right? And indeed the Esoteric II which is affiliate to KKR remains the largest shareholder of IndiGrid. And investment manager where the decisions are made, the corporate governance is coming out of that, and that's where they remain the majority shareholder. And therefore, I would say, investment manager is probably a way to ensure that the business decisions are made in a particular manner than the business in itself. However, it is a business in itself, but the core reason is to ensure that governance has followed over there, and that's where KKR remains majority. I think I would kind of not comment on whose responsibility it is because SEBI did come up with the regulations in July. Could it be done earlier? We don't know. So I think at the end of the day, there was lack of clarity earlier. And on the responsibility side, something which we -- I'm not able to comment whether it's Sterlite's responsibility or KKR, right? That is not -- at least we are focused on managing IndiGrid. That's how I would put it.

No, but going forward, what is the stance of Sterlite? Are they going to hold this 15% units, which they can technically now sell or not? Because if they can sell, then who will be -- I mean, what is the roles and responsibility of a sponsor going forward because there is a case now that nobody will be a sponsor if they decide to check out as well?

Okay. So being the sponsor and the amount of ownership are 2 different things. SEBI regulations provides for the sponsor is the person who forms the InvIT and take it public. And the sponsor has a 3-year locking requirement. After that, there is no locking requirements for sponsor to hold it. So however, SEBI has clearly specified what are the roles of sponsor, which has largely to do with contributing assets at the initiation and providing disclosures around that. Subsequently, it is manager's business to run the InvIT. And therefore, technically, even if Sterlite sells, they will still remain a sponsor. And the business would run proudly as is because the sponsor per se does have a role in running the business, the manager is running the business.

Understood. Now on your receivable side, you have collected INR 220 crores out of INR 360 crores. Remaining, INR 140 crores has been factored? And if yes, then at what interest rate?

Okay. So I think one is it factored, yes, INR 140 crores has been factored. We haven't disclosed the interest rate in the result sheet for the specific transaction. And I will just check if it is disclosed. If it is disclosed, then we can talk about. Otherwise, I can just say that it is linked to an interest rate linked to MCLR of the bank. And it is at a market term or a fairly reasonable terms.

Understood. I just feel that if we can take this feedback from unitholders on this call to the sponsors, I think that would be useful.

Sure.

Next question is from Hitesh Arora from Unifi Capital.

Yes. I have just couple of questions. On this, KKR acquiring the balance 14% stake by May '21. So why -- what's holding them from acquiring now? And why do we have to wait till May '21? Is there any long stop date? Anything to be worried about? What's holding them there? I believe the amount involved is quite small. Then the second question is, could you let us know what is the completion date of any other bigger assets? Is that on time, we were expecting it to be done by November of this year also was progressing? Is that on time? The third question was, could you throw some light on further expansion beyond INR 18,000 crores? What is the plan? How do you raise -- look to raise the funds, et cetera, the time line, regulation, et cetera, if you could throw light on that?

Okay. Fair enough. So I think to answer your first question, again, it is an agreement between the 2 shareholders of the manager to transact on a future date. And nothing is holding up the transaction. The transaction is structured in a way that it was to be transacted. This 14% was to be transacted 24 months from the date of first transaction. And therefore, that is how it was structured between the 2 shareholders of the manager. And that's what is going to take place in 2021, May 2021. The second question was on NER. So I believe there are 2 things. One is we do get understanding of what is the project progress of NER on a time to time basis. We believe it is on time. However, we cannot say accurately because that is something, again, which is Sterlite Power is executing on a project basis. However, I can say that at least the details that we had received or disclosure that we have received that NER is at time of November or December that you mentioned. But again, it is based on the inputs that we received from Sterlite Power. Your last question was on growth beyond INR 18,000 crores. So I think growth beyond INR 18,000 crores. One is we already capitalized till INR 18,000 crores. Growth beyond INR 18,000 crores would require us to raise further capital. And I think there are a few more available, both preference issues as well as rights issue in which to raise subsequent capital, we've raised as a preference issue last year. And that is when large investors like KKR or GIC participated, and we could grow the portfolio. So I think beyond INR 18,000 crores, we wouldn't have to raise capital.

That would be via rights issue?

So it is difficult to commit at this point in time. I hope you appreciate because our shareholder dynamics have overall -- shareholding mix have also changed. So whether we go for a preference issue or a rights issue has to do with few things. One is certainty of a capital raise, right, that which method is going to provide certainty and speed of capital raise. Second is also a wide range of investors who can participate and not participate. Third is speed and execution in market. So I think you need to factor in all these key factors to make that decision. At the moment, we don't do that.

But the regulation allows rights issue now? Earlier they didn't, I believe?

Yes. Regulations does allow rights issue now.

And you have a certain time line -- I mean, you have a vision of INR 30,000 crores in AUM. What's your time line there, by when, because that would also determine the time of the capitalization?

Yes. Yes. So I think I will leave it to directional views on that. One is you ask rights issue or preference issue. I think 1 important point to check between the 2 is rights issue has requirement that we need to have at least 75% of the success, right? And if it is lower than that, it anyways can't go through. And therefore, we also need to see that whether our investor base, the 75% of the investor base is subscribed or sell or we'll be able to raise capital via that. Whereas preference issue to that extent makes it easier and the thresholds are lower. Timing is something which depends on the asset visibility. As and when we see more assets coming to a concrete stage of acquisition, we would look to do capital raise. Even there is a certainty of more assets coming in, we would have to look at capital raise. But I think that depends on how overall marketplace, how the growth plays, et cetera. So at the moment, we cannot comment on when we are going to raise capital. Yes, we have given a guidance that we have a vision to be INR 30,000 crores by 2022. And as and when we cross INR 18,000 crores, we would need to raise capital. Then we will cross is something dependent on progress of framework asset, acquisition of framework asset, more opportunities being available. So I think it is linked to many market factors, right? So tough to provide a time line on that.

Okay. And just on the first question, so they will do the -- KKR by the 14% stake in May '21 or is it by May '21?

As per the agreement, it is in May '21.

It is in May '21. I hope there's no negative surprise here in like norms of agreement type that we had with this current issues?

Sorry. I can say, every agreement has a long stop date, but at the moment, there is no negative surprise that I'm aware about.

Next question is from Hemant from Bearing Advisors.

I hope you've been safe. Since the last time we spoke, I had only 1 question on prospect of asset acquisition. You've made great progress over the last year. And given the long-term trajectory of reaching INR 30,000 crores in AUM versus where we are today, how are you looking at asset acquisition because the investment managers incentive structure is tied somewhat to maximizing AUM, whereas the unit holders incentive structure is tied to maximizing distributions per unit. So how are you looking at the asset acquisition landscape? And are you getting assets which will be acquired at or above the prevailing distribution chain?

Okay. So thanks Hemant. Good question. I think I would just clarify from investment manager perspective or at least the executive perspective, our incentives are not linked to the AUM growth. Largely our incentive is to do with operating performance and NDCF of IndiGrid. In addition to that, even a long-term incentive structure is largely linked to IndiGrid value creation and not with respect to asset growth, right? So that's just a kind of a clarification on that. Yes, investment manager, as a corporate company, if the AUM grows, EBITDA grows, earns a higher peak, however, you would see that our investment manager fees are fairly small and we cover our cost with that. And at the end of the day, for the assets that we acquire, large assets that we acquire, we need to raise capital as well, right? So as and when we raise capital, we'll have to prove the business case to investors to enable such capital raises or asset acquisitions. And there is enough checks and balances in the overall governance framework to mitigate that. The second question, do we see assets which will add to the yield? I would say, yes. But I think overall growth depends on finding the right quality asset at the right price and also having ability to have access to capital at the right time. So I think at the moment, I can say that we have visibility on the INR 18,000 crores of AUM for which we have raised equity. The capital visibility is there. And we have some kind of agreement with Sterlite Power to have visibility on those assets, right? Beyond that, we will have to see, right? At this point in time, yes, our vision is to go there. We will look to acquire assets. We have already announced 2 acquisitions, which are not from Sterlite Power. So we will look to evaluate. But to give anything concrete as a guidance on that is difficult for us today.

Excellent. That's very helpful. And one question on the financing. Given the low rate environment that is prevailing everywhere today and given the AAA credit rating, are you sort of thinking about raising capital in non-INR currencies?

See, we are exploring all the capital raising options. While non-INR currency bonds have happened, the market was dislocated over the last couple of quarters, right, as you would appreciate because of COVID and other things. And also we need some more regulatory clarity regarding in which to be able to do, I would say, offshore bonds, right? So we are exploring that like any other borrowing options that we do. We keep exploring that.

Got it. And one last question from my side. And this is one on the POC mechanism with power grid as a counterparty. Very nice to see collections sort of ramping up in the last 3 months. But I assume there is a relapse of COVID and collections fall. What are the protective mechanisms in place, which will ensure that the collection period does not get extended beyond the 100 days that you have mentioned?

A very difficult question, Hemant. So I would say that, see, COVID is uncertainty, and you asked the question, what if uncertainty extend beyond the point and collections do not meet, right? So now I would say it depends on the balance sheet of the company, and we have been conservative and we would need to watch our balance sheet and cash balances available. And if the collection were to go bad, we will have to watch our cash balance and use from our balances to kind of survive. Whether collections will go bad or not, all the mitigants are there already. So transmission charges are very small pool of the distribution customers, and therefore, there is a -- we have not seen such even COVID kind of scenarios over the last 5 years in terms of collections dropping to 40%. So this is a Black Swan. And if the Black Swan expands to a year, I think it will be less to do with POC, but more to do with balance sheet and how much cash and headway we have to continue that.

Excellent. On that note, I wish you well and a great progress over the past year, and I look forward to great progress in the future assets.

Next participant is Kunal Agarwal, an individual investor.

I hope you're doing well. So I had a couple of questions, and I know you talked a lot about what's been going on in Sterlite and your limited ability to comment on it. Just on that note, again, we understand that there is a pledge that Sterlite created on the indicated stake. And that pledge, I believe, is with a well-known NBFC and it's a payment rather soon. Now if Sterlite is liquidated -- or sorry, has canceled the agreement with KKR, what's their plan to liquidate their stake? I mean, they're going to have to pay this money pretty soon. So are they going to be selling this in the open market? Won't this create a pretty large overhang on our share price or our unit price? And what I'm just -- and generally, I don't know to what extent you can comment, but is it right, the only reason here that we've seen a disagreement between KKR and Sterlite?

Okay. So I think, Kunal, lot of questions. I would simply put, yes, the units are pledged. We have made adequate disclosures last year on this for the loan. IndiGrid is not privy to the maturity date, so it is not possible for me to comment on when is the maturity of this loan. So I'm not able to comment on whether it is soon or late. And what is Sterlite's strategies, again, I cannot comment whether they are going to sell it on the market or otherwise, it's beyond me and I think probably best answered by Sterlite privately on that. The next question also what you asked is again between 2 parties, right, KKR and Sterlite Power or to transact, and they have decided not to transact. Now at least the intimation that we have, we do not have any rationals or reason provided to IndiGrid. So difficult for commenting on that for me.

Okay. And just on the point on the investment managers, I believe the Board is quite balanced and the manager. I think there's one appointee from KKR, one appointee from Sterlite and the rest is independent and yourself. And I was just trying to understand what is the new dynamic going to be at the board level there, assuming KKR and Sterlite aren't necessarily seeing eye to eye? What -- is there any concern that we have of indecision or anything like that, staying out of the about Board. Can you give us some comfort on the fact that at least at the decision level, the business will keep functioning normally?

So Kunal, I think see, all the Board members, including me, have fiduciary role to make decisions in the interest of the InvIT, right? And therefore, it's a professional Board and we will look to continue to do that. So I won't comment on again, dynamics is good, bad. Actually, I don't think both dynamics play a roll over here. All of them are accomplished professionals, and we have a fiduciary role to perform. So we have done it for a long period and would do that.

Got it. And last question, Harsh, is there any -- is it the right time for you to be giving us any DPU guidance going forward? Or is this sort of an evolving situation and we should sort of wait and watch over the next few months, quarters?

So I think we have refrained from giving guidance this year. We just want to wait out the collection scenario on how it pans out. As I -- as we showcase the July collection has improved, we would like to monitor it for a quarter more before being confidently providing the guidance.

Understood. And by the way, congratulations on the stacking agreement that you've -- or mechanism that you guys have worked out. It's a very innovative structure that you guys have thought of in this time. I know there's limited stuff you can comment on it, but what is the duration of the factoring that you do? Is it like 180 days, 210, 270? I mean, what is the period upto which we become bound to pay? And are we factoring 90% of our receivables or 100%, 80%? And is the cost of the factoring lower than the overdue fees that we will receive for late payment?

Okay. So simple answer, factoring typically is low duration. So this -- it is starting from 30 days to 120 days factoring of receivables. We have not done all our receivables factor. We have only done it in 2 legal entities, called JTCL and NRSS. And therefore, we have not done it in all legal entities. And just adequate to kind of pay in this year. And last question -- sorry, I missed your last question, if you can repeat?

My last question, I just wanted to make sure that the cost of the factoring is lower than the sort of overdue fees that we get -- or the overdue interest that we get on late payments?

Yes, yes, certainly. So the overdue late payment structure is substantially higher than the cost of discounting. Correct.

Next participant of Dhruv Muchhal from HDFC Asset Management.

Somewhat related question to the earlier one. Just wanted to probably understand the basic structure of the investment manager, if you can please help us understand that. I believe the key role of the IM is to get and approve new deals and present it to the Board. Is it right?

I mean, Dhruv, there is a much bigger role because -- in this case, there is a very long schedule of responsibilities with the investment manager. It is not just the new deals, for example, for ensuring that the assets run in order, ensuring the financials get reported in time, investor relations, capital raising. So it's -- in a normal parallax if I were to communicate, if you take out the management team of a company, management team of a company and how is it in a separate legal entity is the investment manager, right, as a parallax. So it's like any other company, most -- the senior management team is housed in the investment manager and they need to do all the functions which are required to run.

Okay. And in this current -- in our current structure, the majority will be from the KKR side. 60% of them -- 60% of the representative will be from the KKR and in the current structure?

Yes, there is a shareholding. At the moment, KKR is right to nominate 2 directors. They have chosen to nominate only 1 right now. But it will be proportionate to the shareholders.

Okay. And so I'm just trying to understand, so currently Sterlite owns 40%, probably it will go to 26%, if the deal happens -- assuming it happens. So what is the skin in the game, assuming this is, of course, assuming that the 15% also continue market if they are supposed to sell. So what's the skin in the game? I mean, what is the responsibility to act in a particular fashion or not to act in a particular fashion?

So as I said earlier, the skin in the game -- let me read the question, people who need to act in the interest of IndiGrid is the investment manager. This role is to ensure that IndiGrid runs well in a manner provided, disclosed and in a good governance manner. And therefore, whether Sterlite Power owns 15% of IndiGrid or owns 0, investment manager's role remains the same and we keep doing our role. So I think these 2 are distinct items, and there is probably no linkage to that. And this is something which is for all InvITs, it was very clear that a sponsor is required to lock in 15% of the units only for the first 3 years, which took into account that the role of sponsor is limited and the role of manager is superior. And in case, the majority investors believe that the manager is not doing their role well, they have right to replace the manager as well. So the skin in the game would be for the managers to ensure that you perform in a good way so that IndiGrid and the trustee retains you as a manager. And if we fail to perform, then IndiGrid unitholders and the trustee put together can decide to change the management.

So to this, we need further clarification. Firstly, in terms of compensation to the investment managers or probably to Sterlite, if it owns 40%, I mean, it's interesting the -- after, say, assuming it is a disposal of 15%, just remaining -- not remaining the sponsor or not owning anything in the trust, just as our investment manager, is the fees that it gets as an IM representative. Is it? Or is there something else also -- there is other kind of compensation in terms of probably -- I'm not sure, but is that the only compensation that is agreed?

No, that is correct. So I think one is that Sterlite is 40% shareholder of the investment manager, and that is one economic interest. The second economic interest is that Sterlite charges -- rather IndiGrid has paid Sterlite 10% of the overall O&M expenditure that it does as a project manager. And this is, again, part of the SEBI regulations, which required a project manager who -- and sponsor being a project manager has better relaxations that the project manager is supposed to supervise the O&M, and investment manager is supposed to supervise the project manager. And therefore, Sterlite Power is today a project manager also. And we pay 10% on our overall O&M spends to Sterlite Power. However, these sums are fairly small in overall size of things and fewer things. To give you a perspective, our annualized revenue is approximately INR 1,200 crores and the annualized O&M cost would be somewhere around INR 70 crores to INR 80 crores, and therefore, Sterlite gets approximately INR 8 crores to INR 10 crores for providing this service.

Okay. So the economic interest in the IM is not the key driver to own on any stake in the IM?

I won't jump to that conclusion, right, because it is a different legal entity. And there is an economic interest in that. Now which one is higher or lower, it's something which is not to be...

Yes. And the IM - from a governance structure, the IM reports to the Board of the InvIT.

So Board of the InvIT is -- the Investment Managers Board is the IndiGrid's Board. So the Board that we present is the investment manager board, and whatever decisions we take as a Board comes to either unitholders, if it is a material decision like related parties, et cetera. And also most of the decisions are ratified by the trustee that this is in line with the governance requirement of InvIT regulations.

Okay. So in -- assuming a scenario where the IM has to be -- is to be changed, say, for instance, for not performing to the mark, who's responsibility is it? Is it -- I mean, who does it? Is it the trustee who initiated or is it the shareholders who have initiated?

Okay. So -- okay. So let me first clarify. I am CEO of the IM, right? So let's say, if at all, we are not doing a good job, about 20% of the unitholders need to align and call for an AGM via trustee and then call for a vote. And then based on that vote, it can be decided that we want to change the investment manager. That's the procedure I'm explaining.

Next participant is Vipul Shah, an individual investor.

I have a question, suppose there is a deterioration in COVID situation and your collections fall, will there be a reduction in the DPU going forward?

Okay. So I would say that, look, it's again, a forward-looking statement. Our business is based on collections, largely. So if there is a fall in collections, that would impact our ability to pay DPU. Now will it fall, not fall, is again dependent on the collections that we get, right? So if you say, by scenario, if there is 0 collection, then in that scenario, obviously, where are we going to pay from. So I think it's a hypothetical question if DPU falls will be -- if collection falls, will DPU fall. I won't say it's a direct proportion. But if beyond the point collection falls, in that scenario, there can be a risk of DPU falling. Having said so, as I have said, July collection seems to be healthy. So at the moment, I think we are looking forward to monitor over next couple of months the collection pan out, right?

So sir, if I ask you differently to maintain a DPU of INR 3 for next 3 quarters, what percentage of your receivables you should receive?

Okay. I think that will require some mass of our financials, I won't have...

No, no. Very rough guesstimate, sir.

See, we collect INR 360 crores of revenue a quarter, right, and about INR 360 crores of cash. We pay about INR 175 crores of DPU, right, if we were to pay INR 3. And our outstanding borrowing and the interest calculations are showcased in the quarterly results. I'm not able to get the exact interest outflow. But you can just multiply and set our cash collections, minus interest payments, minus O&M cost, minus collection will give you that number. So I think I'm just showing a way it can be calculated. I don't have the exact numbers right now with me to be able to make that scenario for you.

And sir, I think this question also has been asked previously, but I am curious to know about the terminal value of these units beyond the 35-year agreement. So what will happen beyond, 35 years? Okay. I am an individual shareholder. So please bear me if I -- but I'm very anxious to know what will happen after 35?

Yes. Yes. Fair enough, fair enough. No, I understand. So if you go to Slide 6 of our presentation, and this is something which is an increased disclosure we have started from last couple of quarters to help investors evaluate this. In the overall portfolio that we own today, there is 3,43,000 tonnes of steel and aluminum, okay? So -- and I'll come to where this argument goes. So let's say, we fast forward and reach 35th year, either government or other country would require us to be used as a transmission line, right? If it is the case, there are 2 scenarios. One, government will provide us probably a cost-plus mechanism. There have been a few past circulars where there are directional judgments of CRC. However, again, we need to see what is the commission that decides on that date. And therefore, probably, we would be able to work on a cost-plus basis to extend our contract, okay? If we were to be used as a -- continued as a transmission licensee. Okay? The second scenario is that there is something that has happened and these lines are not required anymore after 36 years, right? In that scenario, these material, the metal is ours, okay? Now what will be the value of this size of aluminum and steel is something, again, I can't predict 35 years down the line, but it is a fairly significant value today itself, right? So if you forecast that in 35 years down the line with whatever inflation assumption you may want to take, probably that will be the scrap value that will be available to us, right? And that is a significant number. I mean, you can run that math based on the price that you want to assume, but that's a significant price. And therefore, either way, there is going to be a significant value of some kind, whether in form of metal value or in form of extended contracts. Either way, there is a sizable value. Which one would pan out? How will it take place? I won't be able to comment because it is way too much in future. And the impact of that today on NPV terms, again, is very going to be small.

Okay. But that will be the only asset with the unitholder, right? In the event of contract not being extended?

Correct. That's correct.

And what is the expected lifespan of this asset, generally?

So generally, the lifespan of these assets is approximately 50 years. So we do build these assets for other developers. We build these assets for design standards, which are longer than 35 years.

Okay. Then -- okay. So there won't be any value except scrap value because after 35 years, residual life will be 10 to 15 years only, that is what we are trying to say.

So either you will get cash collection for 15 years of new tariffs, right, which you will get. And the second is, while the word looks, I would say, minimal or bad, I would urge you to do the calculation on the metal price, right? So it will be a significant scrap value.

Okay. Is there any precedent in the developed countries where this 30, 35 years have been run down and what has happened to those trusts? Can you elaborate on this?

Yes. So I think every country is different based on regulation. I would just say that it works on what is the need of the hour for the country or regulator at that point in time, right? We believe energy having are very important, and maybe they will be continued to be used as energy highways, and we'll continue to get paid tariff, right? That's a simpler way to look at it. So the scrap is a concept to take you to the extreme and say, "Okay, if transmission is not required, what is the value. If transmission is required, then you will continue to get paid."

Okay. Okay, sir. It was very helpful. Still I have some queries, I'll address it to your Investor Relation department.

Next question is from Pradyumna Dalmia from Lansdowne Investment.

I just have a few questions. Number one, on this transfer agreement between Esoteric and Sterlite expiring. Can you share the price at which this transaction was supposed to have happened and was that a price that was fixed?

Yes. So this was a public announcement and the price was fixed. This was to be transacted at INR 83.89 a unit. And this was -- the price was fixed for the contract period or till the long stop date.

Okay. Okay. Okay. So that may, I guess, be one of the reasons why the -- I mean, because obviously the price has significantly increased. So that could be one of the consideration, anyway. So my next question is on our borrowing and factoring. Can you please share your average borrowing rate at the moment?

So it's there in our investor presentation, our weighted average cost of borrowing today is 8.6%.

Okay. 8.6%. Can you talk a little bit more about this factoring thing? And where -- I mean, what are the entities? And how have you done this factoring? Is it through banks, NBFCs or other financial institutions, et cetera?

Okay. So we have done it through banks, and we have done it through for 2 legal entities, called JTCL NRSS, which are our subsidiaries. And the amount of value factoring we have done is about INR 140 crores.

Okay. And this has been done entirely through banks?

Yes, correct.

Okay. Great. And my last question, as one of our objective is, ultimately, the growth in the NDCF. So as the NDCF rises and grows over the years, then isn't it logical that the DPU should also increase and follow that growth because so far, we have maintained a very constant DPU of INR 3 per unit ever since inception, but as the NDCF grows, shouldn't the DPU also grow in some manner?

No, it's a very valid question. And I think once NDCF will grow, we will look to grow DPU. This year, we'll have to see -- so just to give you math, INR 3 a DPU on our investor base is approximately INR 700 crores of NDCF, right? That's what is required for IndiGrid to be able to pay that. And we acquired last year the assets mid-quarter, and therefore, we distributed what we earned. And this year, COVID has come. So we would like to wait and watch and see where we end the year in terms of NDCF, right, to be able to repay, right -- to be able to pay higher amount. In any case, SEBI has put in a clear guideline that we have to anyway distribute minimum 90%, right? So in any case, beyond the point if the NDCF increases substantially, DPU increase will have to happen.

Okay. Okay. Okay. Understood. And just again, just last question, again, on this 15% Sterlite stake, so you said there is at present no indication as to whether they are going to retain the stake or sell it or whether there are any other institutions who might be in the fray of acquiring the stake from them.

Correct. I mean it's not for me to answer on behalf of Sterlite and it is completely their decision on the action.

And as and when there will be any disclosures than either Sterlite as well as your management will...?

Yes. That is a compliance requirement. So we'll have to do it.

Next question is from Devam Modi from Ardeko.

So we are currently at around 50% net debt to AUM. And I understand that we can probably take it higher, up to, let's say, around 70%. So are there any rating challenges which would be there because of which we would have to calculate a particular threshold and we would probably need to raise capital at that point of time?

So I mean, see, at the moment, the way our business plan is structured is that we have taken rating rationales or rather it is called advanced rating rationale, that if you buy assets, all the framework assets, which will take us up to approximately 68%, 67%, in that scenario, we would remain AAA. Having said so, all ratings are valid, and they are cued when we borrow, right? So today's ratings are taking into account today's debt and potential future debt, right, which is about 68%. As and when we raise that debt, rating agency will make a revised assessment, right, looking at several factors. So I cannot forecast that what is going to be the rating. However, I can say that today's rating already accounts into a business plan of acquiring the framework assets.

Sure, sure. So the next was that if, let's say, because of whatever development, let's say, the price -- the integrated unit price drops and the yield IRR rises to a particular level, which is attractive from our perspective. Would there be a case for a buyback? And what would be the corpus available for such a buyback? And if at all, what is the key regulations that are applicable for us towards for the same?

Okay. So at the moment, buyback regulations are not public or not announced by SEBI. So I can't comment on that. At the moment, there is no way we can do a buyback.

Okay. Okay. And the other thing was that you mentioned in your presentation that there are 8 yield platforms. I mean, you have 8 Asian yield platforms and that you would like to be probably among the most admired vehicles. You have mentioned some of the 8 platforms in your presentation and that you would be among the most -- you would want to be one of the most admired vehicle. Right now, if you see, you are trading at a higher scale, and obviously, we have some way to go in terms of size. So what are like the top 3 to 5 sectors in your view that would be key to achieving this? And I mean, any particular platform that you feel is aspirational or that you would like to compare yourself to, in Asia, over the -- going ahead?

So I would say -- I wouldn't say any particular platform, but I would definitely address what are the key factors probably which may help us. One of them is investor awareness, right? And therefore, it is extremely important, and we spend disproportionate time and effort to explain our business, right? We recognize that InvIT is new and it's just 3 years of existence and track record. So we go a little bit extra and explain investors what do we stand for, what is our business and help people understand better right? So that one clearly is there. Second is the examples are for mature markets, right? Today, in which, the market itself is very nascent in India, it's been 3 years, so we believe that with the track record, it would naturally also become comparable, right? And I would say the third one is, if we can continue to grow and become a larger size, right, so I would say these 3 items are important besides the fact that we deliver our results and performance as planned for.

Okay, sure. And finally, from what we can know, there are a couple of decent chunks of acquisitions still remaining from SPGVL to be done. So given the current situation that has developed, would there be any concerns surrounding these acquisitions that are in the pipeline?

So I mean, see, there is a framework agreement signed, it's not with KKR and Sterlite Power. It's between IndiGrid and Sterlite Power. And those framework agreements are there to provide sufficient clarity and both parties have its rights and obligations under that and both the firms are professional firms. So we would look to work on the line of those agreements and give it effect.

Correct, correct, correct. And finally, one -- just one last thing. If, let's say, we understand that right now, we are not having debt repayments to be done as a part of our cash flow because of the current structuring. So going ahead, let's say, we have a net -- we have a gross rate of around INR 6,800-odd crores. And if we normalize the -- right now, interest payments also we are probably paying a little less because of some of the structures of the MLDs and all. So we have to normalize all the interest and debt payments. How do we continue to ensure the current DPU? And I mean, would it mean that probably you will take more debt or refinance more debt at a particular level if you don't add any more assets?

Okay. So there are 2, 3 questions that you asked. So let me try to address that in a simple manner. Will we refinance debt? Yes, we will refinance debt to ensure the tenors are pushed ahead and longer. Can we refinance debt or rather can we take more leverage and distribute to investors, right? If it's a simple question, that can be tomorrow raise INR 500 crore debt and pay DPU? We cannot pay that. As per regulations, if our leverage is more than 49%, we cannot lever more to just pay DPU, right? So there is a natural protection or rather natural regulation around that. So we can only pay effectively DPU from the cash that we have earned.

Next question is from Sunil Shah from Turtle Star Portfolio Managers.

Yes. Yes, a commendable performance from the entire team of IndiGrid, thank you very much for doing this great job in such time. Sir, I'm just doing a follow-up on the previous question as well. In terms of the 3 framework assets, GPTL, KTL, NER. Sir, is the valuation in place? Meaning, the acquisition price at which we'll be acquiring those assets, which will take us from INR 12,000 crores to INR 18,000 crores, is it in place or it's going to be pathbreaking? We are not sure about our acquisition price as well right now?

No. So I think if you look at the -- if you look at our disclosures last year when we did in May 2019, it included the disclosures around the base value on which we have decided to transact. However, there will be adjustments, both upwards and downwards. With respect to several critical factors, including interest rate or any other diligence findings, but the base value on which we assign the framework agreement is captured and disclosed also.

Okay. So any upward or downward revision of price would also be driven on a formula base. It wouldn't be a subjective valuation from the seller side, right? That's the only clarification I wanted to speak.

So -- okay. So see, I mean, we have tried to capture the framework agreement whatever can be done with a formula, right? However, the, let's say, if a diligence finding cannot be addressed in a formula, right? So that is something which we'll have to take case by case. But whatever the number up or down is, we endeavor to address it before we come for AGM approval, right? So we try to capture the updates in the approval of investors. So we do release, even for framework assays, and AGM notice for investors to vote for, right? And therefore, that is a closer date of any final adjustment also that gets disclosed, both upward or downward.

Fair enough. So this acquisition will take us to INR 18,000 crores of AUM, correct?

Yes. Yes.

And just one more point. hypothetically, assuming the assets are acquired, then our previous guideline or the guidance that was there that we rating the DPU of INR 12 for an 8- to 10-year period, barring the coming quarter, long-term sustains because if the acquisition happens then at INR 18,000 crores also, we are reasonably certain about INR 12 DPU for the 8 years period. Is that correct?

That's correct. Yes, that is what we had guided last year. But again, you need to factor in the event like COVID if it happens. Obviously, year-on-year, quarter-on-quarter, there can be changes because of such Black Swan events. But other than that, directionally, you are correct.

Next question is from Sudhir Bheda from Right Time Consultancy.

Sir, SEBI has listed the guideline of giving the exit option to the investor. So can you throw some light on that? Hello?

Yes, I understand that.

That is number one. And second question, see, we are just growing our side and everything is growing except DPU. So barring this COVID situation, we assume that things will be normal in the next, say, 1 or 2 quarters. So what are the chances of growth in the DPU itself? So as an investor, we are looking for that. So these are the 2 questions, sir.

I think to answer your second question first, right, it's a very, very forward-looking statement, assuming things will be okay. I think we'll need to wait for that time, right? Today, we are in an uncertain environment. And therefore, I think it is not appropriate for us to give a comment that things will be okay and what will happen if things are okay. So we'll have to wait and watch how things improve over the next 2 quarters if it does, and we'll be in a better position to provide our guidance at that point in time.

See, my point is whether -- when we are growing our business, whether these things are in mind to grow the DPU, that's what. So that is the thing.

Okay. So to answer your question simply, if -- as we grow our AUM, if our NDCF grows, which will grow, then DPU will grow. But we'll have to factor in events like this and if there is uncertainty, if asset acquisition is delayed or if working cycles -- working capital cycles are extended on account of even COVID-like scenarios, in that scenario, there can be impact on the DPU, okay? The first question that you asked?

SEBI's guideline for exit option to...?

So I think first is, it's a liquid trading instrument. So if at all retail investors want to sell, they can sell on the exchange as well. But besides that, the exit option is only applicable when there is an incoming sponsor who is -- or somebody crossing 25% units, they have taken in approval and have not been able to garner 75% of the investor appeal. Only in that scenario, investor have been offered an exit option. If the incoming investor or sponsor is able to garner sufficient votes, then there is no exit option. But in any case, this is listed for retail investors. So in case they want to sell, they can probably sell it on the exchange any time.

Next question is from Sunil Kothari from Unique Asset Management.

Congratulations on the performance. Harsh, my first question on the permission which KKR had to receive to become a sponsor from the SEBI. Have they received this even, say, post 15th of July?

Sorry, can you repeat that? I'm sorry.

So KKR, when they acquired the stake, it was mentioned that they also need to get permission from SEBI to become a cosponsor along with Sterlite. That was also a prerequisite for them to take the stake up from 23% to 37% or 38%. So have they received this permission from SEBI?

So see, SEBI published the guideline of how somebody can become a sponsor in July, okay? So I wouldn't say there is a permission provided by SEBI and not provided by SEBI. There is a process that SEBI has clarified in July 2020. And anyone, not KKR, anyone who wants to become a sponsor will have to follow that process. So there is no one-shot approval that is required from SEBI, there is a process to be followed, and which means that they need to take approval of approximately 75% investors. And if they can't achieve that and still want to become sponsor, they need to provide exit to the declining unitholders. So there is a process which is laid down by SEBI.

Okay. And one of the requirements is also mentioned that we need to have more than 25% stake, correct?

No, it is -- the requirement is not to have more than 25%. If one wants to cross 25%, one needs to do it. You can try to become responsible if you are not crossing 25%. Again, I'm just reiterating regulations.

Fair enough. But then why the removal of intent from KKR side to not become a sponsor anymore. Because earlier, it was maybe -- it was dependent on SEBI's regulation, et cetera, now that it has received. So KKR is not dependent on acquiring this additional 15% stake to become a sponsor. They can become a sponsor right now based on whatever holding that they have. So why this change in intent from KKR?

Yes. So I would say -- yes so I would say, see, all these transactions were linked in May 2019, right? KKR applied or expressed their interest of becoming a sponsor. And they also signed the agreement to acquire 15%. And to give effect to acquisition of 15%, they would have to become a sponsor, right? And if the 15% transaction is not happening, in that scenario, it is KKR's choice. It is not a requirement of SEBI that you need to become sponsor to acquire that. And therefore, they have exercised their choice. Now can they do it? Technically, yes. Why did they not do it? I cannot answer on their behalf.

No. Fair enough. I respect. That's fine. Harsh Bhai, second question on the interest cost that we have. So since I think 2 years back since we came into the market, I think our average cost of fund has been in the similar range, whereas the yield has gone down. Today, in the RBI policy meeting, the governor also has said that the differential between a AAA-rated corporate yield and GSEC has gone down from some 250 bps to 50-odd bps. But for us, that yield has -- the differential in yield has rather gone up, say, from maybe 100 bps, 150 bps to about 250, 300, right now. And given that our loans will also be asset backed, so I mean, any scope of improvement and why the yield differential has gone up?

So see, we -- as a year back or 2 years back, people used to ask that interest rates can go up and down, do we hedge our interest rate risk. So we used to say that, "Yes, we have fixed our interest cost." So substantial portion of our portfolio has got fixed interest cost because we lock in interest rates as we acquire projects, right, starting from 3 years to 5 years to 10 years, different range and different transactions. So when you look in an interest rate, when you acquire a project, after that, interest rate can go down or it can go up, right? Assuming that interest rates are going down right now, you are seeing a higher spread. But our business is not speculating on interest costs going up and down and creating that much extra return. We see interest cost as a risk, and therefore, we need to try to mitigate that risk by managing it. And therefore, as and when we have got ability and chance to hedge this risk for longer, we have tried to fix our interest cost. Now if after such fixation, if interest rates have gone down, I don't think we as management team look at it as an opportunity loss because it could have gone up as well. And it is extremely difficult or challenging for somebody to predict and take decisions on that basis on a fixed revenue kind of business, right? So we would like to hedge interest cost most of the time.

So the line for the participant dropped. We move to the next participant. [Operator Instructions] Next question is from Ravi Chandra, an individual investor.

It's an excellent presentation. I think maybe I'm the last but one to ask one simple question. On Slide #12 -- you may take some time to go to Slide #12.

Yes, yes.

In Slide #12, I can see there are 2 reserves. One is, you are telling that it is SPV level. Basically, you answered that question. This 28.8 crores is for the fluctuation in collection. And there is one more reserve at IGT itself, at the right most. So could you please explain once again about the second reservoir of INR 62 lakhs?

Okay. So -- okay. So I would first explain the SEBI regulations. SEBI regulations require us to distribute 90% from SPV to InvIT. And then InvIT to investors, we need to have another 90% distribution, okay, minimum. These are the minimum requirements. So we have ability to create reserves at both SPV and at InvIT level depending on the cash flows that get accrued at both entities. So for example, to simply explain this, we could create a reserve of INR 28.8 crores at SPV level and still remain complied by distributing 90% of DPU from SPV to InvIT. And after that, we could create reserve of INR 16 crores at IndiGrid and pay INR 175 crores. So SEBI regulations provide us the ability to create reserves at both levels. And again, these are not accounting reserves, et cetera. These are just cash reserves, which are the 10% of the NDCF that company can retain for either growth of further volatility. So at both levels, there is an ability to do approximately 10%. Does that address your question?

Sir, the line for the participant dropped. Next question is from Sharad S from Avendus Capital Private Limited.

Just want to understand because of the new regulation or new tax changes, which has happened where dividend is tax-free at the hands of investors while interest is -- are you looking at changing the way cash flows work, not immediately, but maybe now a couple of years or 3 years kind of thing?

Sorry, can you repeat that question? I missed that, Sharad.

In terms of distribution -- currently, the distribution entirely is interest, but whereas the tax favorability is towards the grid. Are we working towards some of these cash flow coming to the investors, unitholders, being more dividend and less of interest?

Okay. So I think we look at the overall tax liability on the -- starting from SPV to investors on a full basis, okay? So we believe that even if you look at as a dividend-paying platform, we'll have to pay a profitable tax at the SPV to create profitable reserves and then pay dividend out of that. And if we go for a new tax regime, okay, the dividend will also be taxable in the hands of investors, right, at the marginal rate. So with the new tax regime, the distinction between dividend and interest are actually completely narrowed for most investors, I won't say for all. But dividends are taxable at a normal rate. And to go back to the old tax regime, it will be a substantial tax loss at the SPV level itself. So I think what we attempt to do is that if we earn INR 100, we try to maximize what can reach investors on a post-tax basis from InvIT. After that, different investors have got different tax treatments, right? And therefore, we believe at this moment, what we are doing is focusing on distributing maximum as interest which, based on our shareholding mix today, seems to be the most optimal thing to do. And considering the new tax role where the dividends are also taxable, that's something which we don't see in the foreseeable future to be followed by IndiGrid.

Okay. And I just want to understand, what are the risks from the receivable side? Is it the State Electricity Boards or is it something else?

Sorry, can you -- who are the receivables from?

Yes, which are the receivables from, which are under risk for us?

Okay. So I mean I can't give you which are the specific receivable under risk from us, but our customers include state distribution companies, private distribution companies, state gencos, private gencos. It's a mix of customers.

[Operator Instructions] Next question is from [ Nirav Shah ] from Dalal & Broacha.

Congratulations on the results. I'd like to understand one part in the portfolio that we have going ahead. So from my understanding, we have 3 different assets to be acquired and one is under a share purchase agreement, that is JKTPL, right?

GPTL has already been acquired, sorry. So we have 3 assets of framework assets to be acquired from Sterlite Power: GPTL, NRSS and KTL.

Okay. And for this, the capital raising is not done, that will happen in the future after we monitor the assets construction, right?

Yes. So the equity capital that is required to be able to remain within the leverage ratio has been raised. The debt capital will be raised as and when we look to complete the acquisition.

Okay. And any time line on these acquisitions?

I think that is dependent on the completion of the assets. So as and when they come to completion, there is a process mentioned in the framework agreement. We diligence then the -- follow the framework agreement and make the proposal and offer and then we go to acquire that. So the process starts when the asset is completed.

Okay, sir. And sir, the JKTPL is the asset that has been recently acquired, right?

We have signed the SPA for that, but we require approval from the regulator. So we are awaiting that approval.

So the capital raising for that is done through debt?

Yes. This will be a debt acquired asset, but we have not raised the debt yet. So as and when the regulatory approval comes in, we'll look to acquire.

Okay. So basically, there are 4 assets in line that is JKTPL, GPTL and the NRSS and KTL, right?

Correct.

Next question is from Sanjay Gupta, an individual investor.

My question is more on the operational side. Whenever these dues over -- receivables are overdue. I mean, is there a rate of interest that they pay for the overdue or it is part of the price, and they don't pay for the overdue interest?

No, no. So they do pay late payment surcharge. And the late payment surcharge is approximately 18%. So per month, about 1.5% if they pay after the due date, which is 45 days. And during the COVID time till 30th June, that late payment surcharge was reduced from 18% to 12%. And that was also one of the reasons that people chose to not pay because it was a lesser late payment surcharge. So we believe post 31st July, there's a new late payment surcharge which is 18% that is being levied. And therefore, there is a substantial difference to delay.

So some amount of delay is healthy for the bottom line, some amount of?

I won't say that because the...

Liquidity?

No, late payment surcharge -- no, late payment surcharge are not easily recoverable, right? And therefore, we recognize only on cash basis.

And next question, which I have a small question is on this. I mean, if there are delays on -- is there no right in the agreement to just stop the electricity flow?

I mean that's an extreme way of putting it, but there is a regulation called regulation of power supply, which expresses the procedures to be followed in case a transmission license is not paid. But it is not as simple as that we turn off the switch. It needs to go through procedures with regulators and low-dispatch centers.

Thank you very much. Ladies and gentlemen, that was the last question for today. I will now hand the conference over to Mr. Swarnim Maheshwari for closing comments.

Right, Arijit. Thank you so much, harsh. Would you have any closing comments over here?

Yes. Thank you, Swarnim. So I think the closing comment remains, I think we are focused on our business and the quarter one was a challenging quarter considering the COVID scenario, both from operations, health and safety and collections. And I think we are happy that we have been able to maintain our portfolio assets at a higher availability and address to the O&M requirement as and when it arrests during the COVID scenario as well? We are kind of also happy about our robust business model that our revenue remains intact. And this was the first time when the collections went so low in this quarter. And we were pretty confident that we have a strong balance sheet, and we started the COVID scenario with a strong cash cushion with us, and therefore, we could survive and keep the balance sheet strong. In addition to that, we also did factoring to ensure that a track record that we have built by paying INR 3 DPU continues and our investors earn the expected yield out of that. So I think, overall, it was an eventual quarter from markets and company Board perspective. And we look forward to continue to do the same and hope that overall COVID situation improves in the country and wishing everybody safety on that.

Right, Harsh. Thank you so much, and wish you all the best.

Thank you. Thank you, everyone.