The Indian Renewable Energy (RE) developers have relied on international bond markets over the past few years to raise green bonds at competitive rates and freeing up the domestic lending lines for new projects. The Indian RE developers have raised green bonds aggregating to USD 15.5 billion from overseas markets since 2014. However, the rising interest rates globally, have led to as low down in bond-raising activity in the current fiscal.
A majority of these issuances have been 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 5-7 years, with partial amortization and a bullet repayment at the end of the tenure.
The green bond issuances by Indian RE developers have been generally priced between 4.0% to 6.0%, a spread of about 4.0% over the US treasury rates. However, with the rise in interest rates by the US Fed and other Central banks post-March 2022 amid the risks from rising inflation and the impact of the geopolitical tensions in Europe, the cost of green bond issuances is expected to increase to over 11.0-12.0% including the cost of hedging against 8.0-9.0% earlier.
Given the rising interest rates globally and in India, there financing of outstanding overseas green bonds is expected to happen at a rate higher than the prevailing interest rates, leading to a moderation in the credit metrics. Nonetheless, the impact on the DSCR for an RE project, under the scenario of refinancing with a domestic rupee debt is expected to be lower, compared to a scenario of using a fresh USD green bond to refinance the existing green bonds.
Based on the maturity profile of the outstanding green bonds, over USD 3 billion is due for repayment over FY2024 and FY2025, which is expected to be met through refinancing. Given the sharp rise in global interest rates, these bonds are likely to be refinanced through domestic rupee loans. In this context, the availability of adequate domestic financing avenues remains important.
 developers have relied on international bond markets over the past few years to raise green bonds at competitive rates and freeing up the domestic lending lines for new projects.){kind=link}