Fitch Ratings has assigned Indian Renewable Energy Development Agency Limited (IREDA) a National Long-term Rating of 'A+(ind)' with a Stable Outlook. At the same time, Fitch has affirmed IREDA's INR1bn long-term non-convertible debenture programme at 'A+(ind)' and IREDA's Support rating at '4'.
The ratings reflect the continuation of IREDA's role as a key governmental agency for funding projects in the environment-friendly renewable energy sector. The ratings also factor in 100% ownership of IREDA by Government of India (GoI) which has regularly extended support to the company in its funding through various debt instruments. The ratings also reflect comfortable liquidity, regular equity infusions by GoI and reasonable debt levels. The ratings are constrained by risk profile of its asset book which is characterised by relatively modest size, concentration to a single industry, small size of projects and borrowers, use of new technologies in the projects, higher capital costs per MW and delinquency levels higher than the domestic banking industry.
Some of the debt raised by IREDA carries direct support from GoI in the form of letters of credit and guarantees and GoI bestows tax-free status to some of the bonds, thus lowering the effective cost of borrowings. Some of the other rupee loans from banks are backed by foreign currency deposits raised through foreign currency borrowings. Though IREDA does not enjoy access to traditional low-cost current and savings deposits but its quasi- sovereign status allows it to raise funds at lower cost and to maintain its profitability. IREDA's focus on a single sector limits the scope for growth in asset book but growth potential in this sector is aided by increased focus on sourcing energy from environment-friendly resources and fiscal incentives provided by the government to renewable projects.
IREDA's non-performing loans (NPLs) have been consistently high, reflecting the higher credit risk of its borrowers. Net NPLs have fallen to 11.23% through asset restructuring and better recoveries but the incidence of fresh NPLs is still high. IREDA enjoys high capital adequacy (34% at FYE08) on account of regular equity support from GoI.
IREDA mitigates higher credit risks through its expertise in financing renewable energy projects, low demand risks for power in India, and its role as a conduit for passing capital grants and interest subsidies to borrowers. IREDA's ability to reduce its cost of borrowings through access to cheaper funding sources or to reduce the gross and net NPLs would act as positive rating trigger. Any reduction in GoI support to IREDA, increase in competition from banks/other financial institutions or worsening of the risk profile of its assets would act as negative rating triggers.
IREDA is a non-banking financial company set up by GoI in 1987 to loan funds for the development of renewable energy in India. IREDA is the sole agency funding only renewable energy projects.
Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site
Fitch Ratings is one of the three large global credit rating agencies. Fitch rates 6000 financial institutions, including some 3,200 banks and 2,400 insurance companies, more than 1,700 corporates and 100 sovereigns as well as public finance, sub-sovereigns and structured finance transactions.
Fitch India has four rating offices located at Mumbai, Delhi, Chennai and Kolkata. Fitch is recognised by Reserve Bank of India, Securities Exchange Board of India (SEBI) and National Housing Bank.
