NEW DELHI :
Fitch Ratings on Thursday downgraded state run Indian Renewable Energy Development Agency Ltd’ (IREDA) long-term foreign-and local-currency issuer default ratings (IDRs) to negative from stable.
This development assumes importance and comes in the backdrop of IREDA—one of the largest lenders in the country’s green energy space—expected to play an important role in India’s renewable energy programme which would require $80 billion till 2022. This requirement will grow more than threefold to $300 billion during 2023-30.
“We have affirmed IREDA's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) and its long-term senior unsecured rating at 'BB+'. At the same time, Fitch has affirmed the Short-Term IDR and the short-term senior unsecured rating at 'B'," the rating agency said in a statement.
The state run firm has financed the largest share of renewable energy projects in India and plans to launch its own Alternate Investment Fund. The banks are wary of lending to developers as they suspect the viability of projects that have agreed to sell power at rock-bottom tariffs. India has set an ambitious target of 175GW of renewable energy by 2022 and 500GW by 2030. It has an installed renewable energy capacity of 83GW with another 70 GW capacity under different stages of implementation. The government plans to bid out the balance capacities for solar and wind by June 2020.
“The MNRE (ministry of new and renewable energy) uses IREDA to implement its national policy objective to develop installed renewable energy across the world's third-largest electricity grid. IREDA is the sole administrator for MNRE's programmes, which include incentive schemes for wind and solar-power projects, such as roof-top solar and capital subsidies for solar-water heating," the statement added.
This also comes at a time of the National Democratic Alliance government planning to offer state governments concessional loans from public sector lenders such as IREDA, Power Finance Corp. (PFC), and Rural Electrification Corp. Ltd (REC) to help power distribution companies clear green energy dues, Mint reported on 3 December. This move is expected to resolve a growing crisis in the clean energy sector even as India chases ambitious targets in renewable energy.
“The revision of the Outlook follows the change in the outlook on IREDA's Standalone Credit Profile to negative due to a weaker financial performance in the financial year ended March 2019 (FY19) and deterioration in the company's debt-to-equity ratio. The weaker FY19 financial performance was primarily due to increased finance costs and a INR1.67 billion increase in the level of IREDA's impairments on financial assets," the statement added.
This also comes in the backdrop of global investors’ concern over the Andhra Pradesh government’ decision to relook renewable energy contracts even as India added 47.86 GW of renewable energy capacity over the last six years.
“The impairments were driven by IREDA's adjustment to the Reserve Bank of India's decision to withdraw previous exemptions regarding the recognition of non-performing assets in FY19 and other non-recurring items, such as a INR689.91 million provision taken for IREDA's investment in commercial paper issued by Infrastructure Leasing & Financial Services Limited," the statement said.
India’s electricity sector is going through a rough patch with electricity distribution companies (discoms) owing Rs67,237 crore at the end of October for all power bought from generation companies (gencos).
“Our assessment of IREDA's Standalone Credit Profile takes into account the company's concentrated business model, moderate capitalisation against its higher risk appetite and greater exposure to potential asset-quality volatility in the Indian renewable-energy sector. Fitch also recognises IREDA's smaller franchise size, significant reliance on foreign funding sources and the related market risk this entails," the statement said.