Indian developers have been rushing out to issue green bonds as liquidity in the Indian financial markets continues to stay stretched. An aggregate amount of USD 2.9 billion has been raised by Greenko (USD 1.3 billion), Adani (USD 862 million), ReNew (375) and Azure (350) in the last seven months. The spurt in issuance comes after a lull 2018 when no bonds were issued. Prior to that, a total of USD 2.5 billion worth of bonds were issued in 2016 and 2017.
- The bonds are being issued at a relatively unattractive cost of USD 5.65-6.67%;
- The developers have no option other than to tap into green bonds to free up bank lines for their pipeline projects;
- Because of worsening risk perception of Indian RE, the green bond option is available only to a very small group of developers with the necessary scale and reputation;
Most issuers have followed a template structure issuing bonds with bullet maturity of around 4-6 years. The bonds, rated sub-investment grade at about BB mark, have had to pay high coupon rates of between 5.65-6.67% per annum to attract investors. These rates are about 50-100 bp higher than respective rates two years ago. The one standout offering was made by Adani, which issued USD 362 million of 20-year bonds (average maturity of 13.3 years) against an operational portfolio of 570 MW of operational solar assets. These bonds follow a conventional project finance structure with: i) an annual redemption profile tailored to meet project cash flows; and ii) a tight security structure including several reserve accounts, cash waterfall mechanism, cash sweep and other covenants. As a result, the company managed to improve credit rating to investment grade BBB- and reduce cost to 4.625%, an all-time low for Indian RE developers.
Table: Green bonds issued by Indian RE project developers
Source: BRIDGE TO INDIA research
Note: Portfolio capacity includes only utility scale solar and wind projects except for Greenko.
Overall, we do not deem terms, particularly the cost, of the bonds as attractive vis-à-vis INR term debt. But the developers are keen to free up bank lines for their pipeline projects as both availability and cost of debt have been impacted adversely in the local financial markets. Despite five interest rate cuts by the Indian central bank this year, the Indian lenders are weighed down by liquidity and asset quality concerns.
Green bonds should be an ideal option for the developers when interest rates in developed markets remain near all-time lows and debt investors are increasingly hungry for yield. Unfortunately, risk perception of Indian RE has taken a massive hit following recent instances of payment delays, contract renegotiation and curtailment. As such, this option is available only to a very small group of developers with the necessary scale and reputation.
