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MUMBAI : Hedging strategies, stronger underlying credit profiles and parent company guarantees will limit the impact of rupee depreciation on the credit ratings of Indian renewable energy companies that have outstanding offshore bonds to service, international credit rating agency Fitch Ratings said.

Indian renewable companies have been one of the biggest issuers of offshore foreign denominated bonds over the last few years, raising billions of dollars in the process to refinance domestic loans or to fund construction of new green energy projects.

Fitch-rated portfolio of 11 issuances has a total US dollar bond value of about $5 billion, and includes companies such as Adani Green, JSW Hydro and ReNew Power.

“Coupon payments for eight of the 11 transactions are fully hedged. The scheduled amortization payments, mandatory cash-sweeps, and bullet or balloon payments are substantially hedged. The cash exposure of bullet or balloon payments will only begin to materialize from 2024, as that is the earliest maturity," Fitch said in a report on Thursday.

The rupee has depreciated by about 7% year-to-date against the five-year annual depreciation of 1.8% up to end-2021, the report noted.

“Principal repayments in seven of our 11 rated transactions are either fully hedged or only have exposure beyond a certain exchange rate. For this latter group, hedging contracts provide protection up to a certain exchange rate. However, the downside is uncapped if the rupee depreciates much beyond our expectations unless management extends the current hedges," the report said.

According to Fitch’s analysis, Indian sponsors have increasingly used options to hedge their foreign-exchange exposure in the past two years. “Options are cheaper than outright forward contracts, enabling a lower all-in bond cost," the report said.

Fitch expects hedging strategies to offer considerable protection against risks associated with the rupee’s depreciation. It expects limited rating implications in case of further limited depreciation of rupee. Fitch’s rating cases assume annual rupee depreciation of about 2% over the tenor of the bonds from issuance of the transactions.

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