Indian Renewable Energy Development Agency
(IREDA) has proposed a “credit enhancement guarantee program” aimed at bond
issuance by developers for solar
and wind energy projects which have been in operation for a minimum of one year.
Under this program, IREDA can extend a guarantee up to 25 percent of the
proposed issue size of the bonds as per the latest audited balance sheet.
According to a government document,
IREDA will provide credit enhancement by way of unconditional and irrevocable
partial credit guarantee to enhance the credit rating of the proposed bonds. This
enhanced guarantee program can be used by developers of grid-connected solar
and wind projects. IREDA has established stringent guidelines to filter defaulters and developers
of non-performing projects. According to IREDA sources, the agency wants to
stabilize the renewable energy bond market in India which could lead to further
availability of funds at cheaper borrowing rates.
The agency has mandated that projects for
these bond proceeds should not have a debt
to equity ratio of more than three two one, and the minimum issue size of the proposed
bonds should not be less than Rs.1 billion (~$15.03 million) to be eligible for
the program. The projects also need to have a Debt Service Coverage Ratio
(DSCR) of 1.2 and a credit rating of not less than “BBB”. The maximum tenure of
these bonds will be up to 15 years.
The IREDA official also added that the market for bonds in the renewable
energy sector is growing and expects IREDA’s move to result in greater profits
for the agency.
According to Mercom’s India
Quarterly Report, banks and financial institutions have allotted about Rs.788 billion
(~$11.8 billion) in funding for clean energy projects, of which Rs.335 billion
(~$5 billion) has been released as of the end of March 2016. Twenty-three
public sector and seven private sector banks, along with four public sector and
two private sector non-banking financing companies (NBFCs) have committed to
finance 76.3 GW of renewable energy projects totaling Rs.3,820 billion (~$57
billion) over five years through green commitment certificates.
low bids and low margins, borrowing in the current environment in India can be
complicated. The borrowing process can involve getting a buyer’s credit from
module manufacturers initially and a line of credit followed by domestic borrowing,
debt funds at low rates and after the projects are operational for a few years,
refinance with foreign lenders or infrastructure funds,” said Raj Prabhu, CEO
of Mercom Capital Group.