RE firms may use rupee loans to refinance $3 bn overseas green bonds

Costly overseas funds forcing them to tap domestic sources

With global funds becoming costly, Indian renewable energy (RE) companies may use domestic rupee loans to refinance green bonds worth $3 billion due for repayment in FY24 and FY25.

The refinancing of overseas green bonds is expected to happen at rates higher than the prevailing interest rates, leading to moderation in the credit metrics. Nonetheless, the impact on the Debt servicing for refinancing using a domestic rupee debt is expected to be lower than issuing fresh dollar green bonds to refinance the existing bonds, according to rating agency Icra.

The $300 million due for repayment in FY23 had already been repaid by the developer through proceeds from an earlier bond issuance.

Icra said green bond issuances by Indian RE firms have generally been priced at 4-6 per cent, a spread of about 4.0 per cent over US treasury rates. The rate hikes by Central banks the world over amid rising inflation risks and impact of the geo-political tensions in Europe have changed the scenario. Hence, cost of green bond issuances is likely to increase to 11-12 per cent, including cost of hedging, from 8-9 per cent earlier, according to Icra.
 

Indian RE developers have raised green bonds aggregating to $15.5 billion from abroad since 2014. However, the global rise in interest rates has led to a slowdown in bond-raising activity in the current fiscal.

Icra said RE developers have relied on international bond markets over the past few years to raise green bonds at competitive rates. This freed up the domestic lending lines for new projects.

A majority of these issuances were for refinancing the rupee debt for operating assets through a restricted group structure having a pool of RE assets spread across multiple states and multiple off-takers. The tenure of these bonds has typically been in the range of five-seven years, with partial amortisation and a bullet repayment at the end of the tenure, it added.