'ISTS present Rs300bn refinancing opportunity for bond market'

Inter-state transmission system (ISTS) projects present a Rs 300 billion refinancing opportunity for the bond market over the next three years as 14,000 circuit kilometer of under-construction lines will be operational, says a report.
"Such refinancing will help lower cost by around 100 basis points. Also, the tenure of funding will get extended to 15 years or more, which would improve the financial flexibility of projects," Crisil Ratings's senior director Sachin Gupta said in a report today.
The refinancing will also free up capital for banks that can be used for lending to other sectors, he added.
The rating agency said credit risk profile of operational ISTS projects is strong because of assured cash flows, low operations and maintenance (O&M), and low counterparty risk.

This appeals to bond investors, as is evident from bond issuances of Rs 5,000 crore for operational ISTS projects over the past couple of years, it said.
Revenue for ISTS projects is assured through long-term (30-35 years) transmission service agreements, and is delinked from the quantum of electricity transmitted.

The report said counterparty risk is quite low for ISTS projects because of the presence of a point of connection (PoC) mechanism, managed by Power Grid Corporation of India (PGCIL).
Under this, all ISTS projects have shown timely collection of more than 97 per cent payments from respective discoms.
The rating agency expects collection track record to sustain over the medium term given the strong and active role of PGCIL.