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India Ratings and Research (Ind- Ra) today said lower interest rate or borrowing cost is likely to brighten the solar energy sector.
Ind-Ra estimates that Rs 560 billion out of total debt of Rs 1,730 billion could be refinanced at a lower borrowing cost across various infrastructure sub-sectors in its portfolio till 2018-19.
Also, there could be a shift in the type of instruments issued for the purpose of raising capital in the sector mostly to the capital market instruments, namely bonds, from the conventional term loans, it said in statement.
Ind-Ra estimated that for each 1 per cent reduction in interest rate, the incremental surplus as a percentage of cash flow available for debt service will be the highest for toll roads, followed by solar and wind energy.
This could mainly be because the interest burden on these sectors is high as most of these projects are at the ramp-up stage, it added.
Solar projects owing to stable revenue profiles and toll roads with reasonable track records appear to be the ideal candidates for refinancing, it further said.
Though Ind-Ra expects replacement of bank loans by bonds, traction will be witnessed through infrastructure investment trusts.
Also, Ind-Ra observed that the benefit of interest rate reduction will be the least for the annuity sector, followed by thermal power, because refinancing risk has already been factored in at the point of initial funding for the former and there is minimal improvement in persistent issues for the latter.
The debt service coverage ratio is seen to improve 0.04x across infra sectors in 2017-18.