Overseas Green Bonds Help Indian RE Developers Raise Over USD 15 Billion

Over the past five years, Indian renewable energy (RE) companies have relied on global bond markets to raise green bonds at attractive rates and open up domestic funding lines for new projects. Since 2014, Indian renewable energy developers have raised USD 15.5 billion in green bonds from international markets. The global rise in interest rates has, however, resulted in a decline in bond issuance for the current fiscal year.

The vast bulk of these issuances has been used to refinance the rupee debt for operational assets using a restricted group structure with a pool of RE assets spread across numerous states and multiple off-takers. These bonds have historically had a 5-7 year term with partial amortisation and a bullet repayment at the end of the term.

The green bond issuances by Indian renewable energy developers have typically ranged in price from 4.0% to 6.0%, representing a spread of around 4.0% over US treasury rates. In contrast, the cost of issuing green bonds is anticipated to rise to over 11.0-12.0% including the cost of hedging from 8.0-9.0% earlier with the increase in interest rates by the US Fed and other Central banks post-March 2022 amid the risks from rising inflation and the impact of geopolitical tensions in Europe.

The financing of existing foreign green bonds is anticipated to take place in India at a rate higher than the current interest rates due to the rising interest rates both internationally and domestically, which will cause a moderating of the credit metrics. However, compared to a scenario where a new USD green bond is used to refinance the current green bonds, the impact on the DSCR for a RE project in the scenario of refinancing with a domestic rupee loan is anticipated to be less.

Over USD 3 billion is needed for repayment over FY2024 and FY2025 based on the maturity profile of the outstanding green bonds, which are anticipated to be serviced by refinancing. These bonds are expected to be refinanced by domestic rupee loans given the dramatic increase in interest rates around the world. The availability of suitable domestic funding options is still crucial in this situation.