Moody's downgrades Azure Power Energy and Azure Power Solar Energy

Global Rating agency Moody's has downgraded Azure Power Energy Ltd's (APE) senior unsecured rating from "B1" to "B2" and Azure Power Solar Energy Private Ltd's (APSEP) unsecured rating from "Ba3" to "B1". The agency's “B2” rating indicates speculative grade, while “B1” belongs to the non-investment grade category, signifying that the issuer is relatively risky, with a higher than average chance of default.

The one-notch downgrade of APE's and APSEP's debt ratings has been driven by governance issues related to internal controls and compliance. The two firms have delayed the filing of the audited financials for their two RGs (restricted groups). The rating action also considers factors such as high senior management turnover and the resignation of the auditors for APGL and the two RGs.

APE and APSEP are special-purpose vehicles that use dollar note proceeds to subscribe to senior secured denominated bonds and loans denominated in Indian rupee, as external commercial borrowings issued by subsidiaries.

APE has been used for a clutch of 16 restricted subsidiaries in the restricted group (RG-3) and APSEP has been used for 10 restricted subsidiaries in the restricted group (RG-2).

Moody’s said in a statement that there was increasing probability of a technical default on the bonds and the potential delisting of APGL if the company ceases to file periodic reports with the US Securities and Exchange Commission (SEC).

At the same time, the agency has changed the outlooks on the ratings to “negative” from ratings under review.

The negative outlook reflects heightened refinancing risks and governance considerations related to uncertainty regarding the timelines for the filing of audited financials for APGL and both the rated entities.

APGL is currently listed on the New York Stock Exchange (NYSE), which has given the company a second extension to file its financials for the fiscal year ended 31 March 2023 (fiscal 2022) by 15 July 2023 and to update all filings including its fiscal 2023 financials by August 15, 2023.

Subsequent to today's rating action, the agency will also withdraw APE's senior unsecured rating and APSEP's backed senior unsecured rating.

Moody's has decided to withdraw the ratings because it has insufficient or otherwise inadequate information to support the maintenance of the ratings. This concludes the rating review that was initiated on 29 May 2023.