Fitch upgrades IREDA's long-term IDRs to 'BBB-'; outlook negative

Fitch Ratings has upgraded Indian Renewable Energy Development Agency Ltd's (IREDA) long-term foreign and local-currency Issuer Default Ratings (IDRs) from 'BB+' to 'BBB-' with the government consistently guaranteeing the high level of the entity's debt.

The outlook is negative and the outlook on IREDA's long-term IDRs mirrors that on the 'BBB-' sovereign rating. At the same time, Fitch has upgraded the short-term IDR from 'B' to 'F3'.

IREDA is the flagship government-related entity (GRE) under the administrative control of the Ministry of New and Renewable Energy (MNRE). The company provides financing for and encourages investments in the renewable energy sector in India.

IREDA's overall support score under the criteria increased to 45 from the 30 in last year's review. This is after Fitch raised its assessment of the support record factor to 'very strong', following a reassessment of the government's support to ensure IREDA's funding.

The assessment of rating takes into account expectations that the government will maintain a sufficiently high majority stake The company has postponed its IPO plans, which could have reduced the government's stake to 85%, due to market volatility following the Covid-19 pandemic. Fitch believes the potential dilution would not have been material to affect the government's control.

The government guaranteed 41% of IREDA's debt at end-March 2020 (44% at end-March 2019). The company's large borrowings from bilateral and multilateral institutions, which are backed by government guarantee, are important to support its growth.

In addition, IREDA has applied for a capital injection of Rs 1,500 crore from the MNRE, following the postponed IPO. The injection is pending budgetary approval, but Fitch expects it to be approved. Once approved, it will help IREDA maintain its leverage and allow the company to provide funding to the renewable energy sector. In addition, the government has waived the requirement that the company pay it dividends for FY20.