IREDA plans to encourage bond issuance by solar developers

IREDA will extend guarantees of up to 25% of a bond’s proposed issue size, as per the most recent audited balance sheet. According to a government proposal, IREDA seeks to provide credit enhancement via an unconditional, irrevocable guarantee for part of the total amount.

The program will be made available to developers of grid-connected solar and wind projects, with stringent guidelines in place to filter defaulters and poor performers. According to sources within IREDA, the agency wants to stabilize the Indian market for renewable energy bonds, which could result in the availability of funds at lower borrowing rates.

Bond issuance could achieve greater stability in the market, by creating a simpler way to borrow. “Borrowing in the current environment in India can be complicated,” says Mercom Capital CEO Raj Prabhu, “the process can involve getting a buyers credit, then a line of credit followed by domestic borrowing and refinancing after a couple of years in operation.”

IREDA’s official also added that the agency expects to increase its profits with the move, as the market for bonds in the renewable energy sector is growing steadily.

The guidelines stipulate that bond proceeds should have a debt to equity ratio not higher than 3:1, and that the minimum issue size should be no less than Rs. 1 billion (US$15.08 million) to be included in the program. Projects must also have a debt service coverage ratio of 1.2 and a credit rating no lower than BBB to be eligible. Bonds can last for a maximum of 15 years.

Mercom Capital’s India Quarterly Report shows that financial institutions have allotted roughly Rs. 788 billion (US$11 billion) to fund clean energy, Rs. 335 billion of which has been released. Both public and private sector organizations have already committed to financing 76.3 GW of renewable energy projects over 5 years.