Fitch downgrades Azure Power Energy's rating on governance concerns

There is lack of clarity in impact of holding company's internal controls and compliance framework: Rating agency

Fitch Ratings has downgraded Azure Power Energy's (Azure RG3) US dollar bond from 'BB+' to 'BB' on corporate governance concerns it said is evident from the company’s failure to manage regulatory financial disclosures past statutory timeline.

It also cut rating on Azure Power Solar Energy's (Azure RG2) US dollar bond from 'BB' to 'BB-' (RG stands for restricted group). The two companies are part of Azure Power group, a renewable power producer in India with a portfolio of more than 7.4 GW of high-quality renewable energy assets.

Ratings remain on Rating Watch Negative (RWN), Fitch said in a statement on Monday.

RWN reflects the continued lack of clarity in relation to the impact of Azure Power Global Limited's, the holding company APGL, unresolved internal controls and compliance framework. The lack of clarity also exists in the recent changes in management, overall performance and financial flexibility of the restricted groups.

APGL missed its statutory deadline in filing its Form 20-F audited financial statements for the financial year ended March 2022 (FY22) with the US Securities and Exchange Commission (SEC) in August 2022. However, there is still no clear indication on the group publishing its audited financial statement, and further delays could lead to delisting from the New York Stock Exchange.

The structure of the restricted groups, covenants and standard cash distribution waterfall provide some safeguard to bondholders from the implications stemming from a series of events at the APGL level.

Both restricted groups have released their FY22 unaudited financial statements, while audited financial statements could only be released upon filing with the US Securities and Exchange Commission.

Fitch Ratings said Azure RG2's rating headroom has also reduced significantly in light of continuing under-performance of the portfolio.

Continuing operational under-performance and/or material difference in audited financial statements will warrant higher stress in our rating case and may affect the credit assessment further.

On the other hand, Azure RG3's operational and financial performance according to the unaudited numbers remain in line with our expectations, Fitch added.