Get ready for India’s renewable energy issuance bonanza

Domestic issuance from the Indian renewable sector is being met with a warm welcome from onshore institutional asset managers, even as domestic loan bankers cold-shoulder the sector

Viewpoint

ONE of the perennial gripes about funding energy projects in India was the nightmarish landscape for offtake agreements. This is due to a highly fragmented backdrop for power regulation at a local government level and an unreliable tariff system. But I suspect that this is about to change as India’s national government starts to take its sustainable development goals (SDGs) seriously in an effort to increase the sustainable energy proportion of power production in the country.

It therefore seems reasonable to assume that an issuance bonanza is about to get underway in the Indian renewables sector, even though that sector has a reasonable amount of hair on it thanks to a background of default. The debt restructuring of wind turbine manufacturer Suzlon, which consolidated a raft of debt to the tune of around US$500 million just over three years ago, remains fresh in the memory, as do debt service problems on convertibles issued by Jaiprakash Power Ventures and GTL Infrastructure, which each failed to redeem convertible bonds a few years ago. But the warp-speed with which investment in renewable energy is moving globally suggests that the sins of the recent past are set to be forgiven.

A disintermediated call to arms in the bond markets, both offshore and onshore, is the likely outcome of this dynamic as India’s banks remain smarting from their experience of lending to the country’s energy and energy-related sectors and are reluctant to assume new energy risk. This, even though state-owned banks have recently received a massive shot in the arm via a US$32 billion-equivalent recapitalization exercise, which I wrote about in this column a few weeks ago.

Still, even if an issuance bonanza in renewable energy-related paper is on the cards from India, there will be tremendous name sensitivity as far as sponsors are concerned, according to Asia-based project finance bankers I spoke to this week. The same is true of off-takers for the power produced. A stark example in this regard was provided last week via domestic rupee issuance from sustainable energy producer Greenko, which tapped local investors for around US$460 million at 10 years. Undoubtedly, the presence of Singapore’s giant sovereign wealth fund GIC, which owns more than 60% of Greenko, together with an offtake from Indian government-owned NTPC, helped propel the paper over the line.

But the message seems clear: domestic issuance from the Indian renewable sector is being met with a warm welcome from onshore institutional asset managers, even as domestic loan bankers cold-shoulder the sector. Still, the disintermediation dynamic in the renewable sector does not exclude the country’s banks; they are able to participate in the newest financial market fashion statement by issuing green bonds and on-lending the proceeds. Axis Bank, Yes and India Exim have each issued green bonds which have been well received domestically and leave the door open for more.

As India aims to ensure that 40% of its population taps its power from renewable energy sources by 2030, an issuance bonanza is front and center in India’s onshore and offshore debt markets.