IREDA Launches First-Ever Perpetual Bonds to Raise ₹1,247 Cr

IREDA Launches First-Ever Perpetual Bonds To Raise ₹1,247 Cr

By Chitrika Grover/ Updated On Thu, Mar 20th, 2025

Highlights :

The 8.4% coupon is relatively attractive compared to current government bond yields (typically 6-7%)

IREDA

Indian Renewable Energy Development Agency Limited (IREDA) has launched its first-ever issue of Perpetual Bonds for an amount of ₹1,247 crores at an annual coupon rate of 8.40%. This development comes soon after IREDA’s board decided to hike the borrowing limit for FY25 to Rs 29,200 crore from Rs 24,200 crore.

IREDA, the Navratna company through this initiative aims to optimize the company’s capital structure while capitalizing on the current supportive market conditions. The issuance of Perpetual Bonds envisions enhancing IREDA’s Tier-I capital, ensuring a stronger financial foundation to support the rapid expansion of India’s green energy infrastructure. Commenting on the successful issuance, Pradip Kumar Das, Chairman and Managing Director, of IREDA, said, “We extend our gratitude to investors for their enthusiastic response. Strengthening our capital base through Perpetual Bonds will enable us to scale up financing for renewable energy projects, accelerating India’s transition to a cleaner and more sustainable future.”

Beyond this IREDA has also received a refund of ₹24.48 crores on March 19, 2025, from the Income Tax Department towards partial relief granted by the Commissioner of Income Tax (Appeals) for Assessment Year (AY) 2011-12, related to certain disallowances.

A refund of approximately ₹195 crores is under process for similar relief provided by CIT (Appeals) for AYs 2010-11, 2012-13, 2013-14, and 2015 16 to 2018-19, which is yet to be received.

Are These Risky?

Perpetual bonds, by their nature, carry both benefits and risks. Here’s an analysis of the risks associated with IREDA’s perpetual bonds, tailored to their context:

1. No Maturity Date (Principal Risk)

Risk: Since perpetual bonds have no maturity, investors never receive the principal back unless IREDA exercises a call option. If IREDA opts not to redeem the bonds, your investment is tied up indefinitely, and you rely solely on interest payments.
Context: IREDA’s financial health and its ability to sustain these payments long-term become critical. As a government-backed entity, it may have more stability than private issuers, but there’s no absolute guarantee.

2. Credit Risk

Risk: You’re exposed to the creditworthiness of IREDA. If the company faces financial distress or defaults, it could skip interest payments or, in extreme cases, write down the bond’s value (though this is more common with bank-issued Additional Tier-1 bonds). Perpetual bonds expose investors to this risk indefinitely.
Context: IREDA is a public sector undertaking (PSU) under the Ministry of New and Renewable Energy, which may reduce the likelihood of default compared to private firms. However, its performance depends on the renewable energy sector’s growth and government support. Any policy shifts or economic downturns affecting green energy funding could impact its ability to pay.

3. Interest Rate Risk

Risk: If market interest rates rise above 8.4%, the value of these bonds on the secondary market could drop, as newer bonds might offer higher yields. Since there’s no maturity, you’re locked into the 8.4% rate unless you sell at a potential loss.
Context: India’s interest rate environment is dynamic. With inflation and Reserve Bank of India (RBI) policies in play, rates could fluctuate. However, the 8.4% coupon is relatively attractive compared to current government bond yields (typically 6-7%), though this gap could narrow.

4. Call Risk

Risk: If IREDA includes a call option (common in perpetual bonds), it could redeem the bonds when interest rates fall, forcing you to reinvest at lower rates. Conversely, if rates rise and IREDA doesn’t call the bonds, you’re stuck with a below-market yield.
Context: Details on whether IREDA’s bonds have a call option haven’t been explicitly detailed in public announcements, but it’s a standard feature. Investors should check the bond’s terms to confirm.

5. Liquidity Risk

Risk: Perpetual bonds can be less liquid than traditional bonds. If you need to sell before a call date (if any), finding buyers in India’s corporate bond market—known for thin trading—could be challenging, potentially leading to a discounted sale price.
Context: IREDA’s bonds, backed by a PSU, might attract more interest than private issues, but liquidity remains a concern in India’s debt market.

6. Subordination Risk

Risk: Perpetual bonds are often subordinated to other debts. In a liquidation scenario, holders get paid after senior creditors, increasing loss potential.
Context: While IREDA’s bonds aren’t explicitly labeled as Additional Tier-1 (AT1) bonds (common in banking), their perpetual nature suggests they could rank lower than other obligations. As a PSU, liquidation is less likely, but the risk exists.