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.
“With 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.
Image credit: IREDA