Oil sector PSUs to establish InvITs for asset monetisation

Industry Outlook Team | Tuesday, 23 March 2021

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After power, the country's oil sector PSUs would now float an infrastructure investment trust (InvIT) as component of the asset monetisation exercise declared by the government and mobilise resources for new capital investment.

As course of the exercise, gas transportation utility Gail NSE -1.75 % India is expected to establish the gust InvIT in the oil segment in the upcoming financial year. The proposed InvIT will house some of the gas pipeline infrastructure created by the firm.

Oil ministry officials stated that this will help Gail to mobilise over Rs 20,000 crore through this route

that could be helpful in budding new pipeline infrastructure that would assist the country in developing a gas-based economy.

Two more and other oil public sector undertakings (PSUs), HPCL and IndianOil, may also set up InvIT at a later stage. While Gail and HPCL will concentrate on monetising their pipeline infrastructure through the investment trusts, IndianOil proposes to do so in the case of its hydrogen-producing units as well as product pipelines that would be separated into an InvIT.

An InvIT is an investment vehicle generated to hold income-generating and operational infrastructure assets such as roads, power transmission lines, and gas pipelines. These are like mutual funds and instead of financial securities InvITs hold bankable assets having long-term contracts with strong counterparties that present a steady cash flow over the long term.

The investment trust route may be novel for the oil sector but power segment transmission utility PowerGrid NSE- 2.04% has already put some of its assets for monetisation under the InvIT set up by it earlier. Other large PSUs will also be optimistic to take this route.
Asset monetisation is an significant aspect of the disinvestment exercise for FY22. Though this normally does not offer the Centre with large gains on PSU assets, it helps the entries to start a fresh capex cycle based on fund mobilisation through the route.