Companies like India Clean Energy Holdings are hopping on the ESG wagon to issue green bonds. With the recent conclusion of COP26, more fiscal incentives have been rolled out to encourage companies to decarbonise their businesses. Several states in India have provided incentives to support the generation and sale of renewable energy.
About the new USD bonds
India Clean Energy Holdings (“ICEH”) announced today that the company is issuing a 5.25 years senior secured callable green bond. The green bonds from this bond offering are issued under a green bond framework that is drafted in accordance with the Climate Bonds Standard version 3.0 that has been verified by KPMG.
The bond is redeemable at certain prices after 3.5 years and 4.5 years, and between 4.5 and 5.25 years. Moody’s / Fitch are expected to assign respective credit ratings of “Ba3” / “BB-” to the notes. ICEH is the offshore issuing entity that is a wholly owned subsidiary of NASDAQ-listed ReNew Energy Global plc. Proceeds from this green bond issuance will be used to subscribe to US dollar denominated external commercial borrowings (“onshore notes”) issued by ReNew Power Private Limited. ReNew Power Private Limited is the onshore entity that owns and operates a number of renewable energy projects (“eligible green projects”) including those in wind energy, solar energy, renewables transmission infrastructure and storage infrastructure.
With a senior secured ranking, the bonds are secured by certain assets of ICEH but excludes assets or income from its onshore Indian entities. Additionally, they are secured by shares pledged by ReNew Energy Global plc.
About the group
ReNew Power is a leading renewable energy in India and one of the largest in the world. As at 30 September 2021, the group had a commissioned capacity of 6.32GW and an additional 3.90GW of committed capacity. They operate 110 wind, solar and hydro energy projects with a committed capacity of 10.22GW across ten states in India, comprising of 5.0GW of solar projects, 5.2GW of wind projects and 0.1GW of hydro projects.
62% of the group’s power consumers are utility companies with strong credit ratings assigned by India’s Ministry of Power, and other domestic rating agencies. Other power users include central agencies like the Solar Energy Corporation of India Ltd., and the National Thermal Power Corporation Limited.
Financials and credit highlights
Total income increased 26.0% YoY to INR 38.12b (~USD 511.80m) during the 6-months ended 30 September 2021 (“1HFY22”), out of which revenue from wind power increased by 25% to INR 22.69b (~USD 304.67m) while revenue from solar power increased by 4% to INR 9.54b (~USD 128.06m). Group profit swung from a loss of INR 592m (loss of ~USD 7.95m) in 1HFY21 to a net profit of INR 5.78b (~USD 77.54m) in 1HFY22.
Group EBITDA jumped from INR 26.06b (~USD 349.83m) in 1HFY21 to INR 31.92b (~USD 428.63m) in 1HFY22 with very strong EBITDA margins of 86% in 1HFY21 and 84% in 1HFY22.
Net cash generated from operating activities was fairly stable at INR 12.80b (~USD 171.82m) in 1HFY22 (1HFY21: INR 12.71b or ~USD 170.65m). The group spent INR 24.48b (~USD 328.71m) in FY21 and INR 48.12b (~USD 646.11m) in 1HFY22 on capital expenditures to purchase PPE and other intangible assets.
The jump in capital expenditures were made ahead of a proposed customs tax on foreign imports. The market prices of wind turbines and solar module panels have dropped in recent years due to increasing competition and a marked decline in input costs. Most of the import equipment are bought from China, but the Indian government recently announced that it will impose a 40% customs duty on solar modules and a 25% tax on solar cells that will take effect from 1 April 2022.
Renew Power has a strong liquidity profile with INR 24.99b (~USD 335.46m) of cash and cash equivalents and INR 37.92b (~USD 509.13m) of bank balances. This is more than sufficient to cover its short term borrowings of INR 28.61b.
However, gearing is considerably high with net debt to equity of 250.4%. Taking into account its INR 361.52b (~USD 4.85b) of long term borrowings, the group had a net debt position of INR 327.22b (~USD 4.39b). Estimated interest servicing ability is nonetheless adequate at 2.09x (based on 1HFY22 EBITDA / Interest), up from 1.40x in 1HFY21.
Investors who are keen on India related green bonds can consider this ICEH 5.25 bond. The yield guidance is at 4.8%, which is 20 basis points higher than the 5.875% March 2027 notes issued by Renew Power Private Limited. As a result, we believe that it is relatively attractive but investors should note that the final yield guidance might be lower than 4.8% as its March 2027 is trading at a yield-to-worst (“YTW”) of 4.62%. As a pricing reference, there are other bonds from Indian firms such as the 6.25% bonds issued by Adani Green Energy Up due in December 2024 (YTW: 3.23%), and the 3.575% bonds issued by Azure Power Energy Ltd due in August 2026 (YTW: 3.21%).
Declaration: For or specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.
Our podcast series, Yield Hunters, is available on Spotify, iTunes Podcasts and Google Podcasts. We share our thoughts on new bond issues and hold discussions on the fixed income space. Listen to our latest episode below and follow us!
