BWI: Brickwork Ratings assigns “BWR AAA+” for Indian Renewable Energy Development Agency Ltd.’s Structured Obligation Rating

Press release from Business Wire India
Source: Brickwork Ratings
Monday, December 07, 2009 03:38 PM IST (10:08 AM GMT)
Editors: General: Consumer interest, Economy; Business: Advertising, PR & marketing, Banking & financial services, Business services, Energy companies, Financial Analyst, Stock exchanges
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Brickwork Ratings assigns "BWR AAA+" for Indian Renewable Energy Development Agency Ltd.'s Structured Obligation Rating
Structured Obligation Rating: BWR AAA+(SO)

Bangalore, Karnataka, India, Monday, December 07, 2009 -- (Business Wire India) -- Brickwork Ratings has assigned BWR AAA+(SO) (Pronounced BWR Triple A plus (Structured Obligation)) with 'Stable' outlook to IREDA's (Indian Renewable Energy Development Agency Ltd) proposed non-convertible bonds issue of Rs 150 crore or INR 1.5 billion, backed by Government of India's letter of comfort. BWR AAA+ signifies 'Best Credit Quality' in terms of meeting debt service obligations. Brickwork has relied upon the audited financial statements, information and clarifications provided by the issuer. IREDA would use the proceeds from the bonds issue to fund the new and renewable energy projects in the country.

Over the years, the new and renewable sector has been receiving lot of attention from commercial banks, venture capitalists, non-banking financial companies, and private equity investors due to growing energy requirements and threat of global warming and climate changes. This sector is also supported by availability of rich renewable energy sources in the country, Central and State Governments' support in the form of incentives and tax benefits and favourable policies adopted by international agencies. However, the new and renewable energy sector projects are considered to be high risk projects due to long gestation period in certain cases and capacity under utilization on account of natural causes.

The rating factored IREDA's important features including 100% ownership of the promoter (Government of India), business profile, significantly higher capital adequacy, professional management set up, debt support from international financial institutions, and lean operating structure. The Government of India has been fostering IREDA as a nodal agency for the development of new and renewable energy in the country. The rating has also factored single sector exposure, high NPAs, increased competition from public sector banks and financial institutions, portfolio of smaller assets, low recovery rate and power tariff complexity prevailing in the country and the risk of delay in completion of projects.

Brickwork calculates Leverage that assesses Company's net worth with reference to balance sheet exposures. IREDA has shown a lower leverage of 3.71 in FY 09 as compared to the previous year figure of 3.82. The Company's lower leverage is considered positive rating factor.

The Government of India has infused equity of Rs 30 crore during FY09 to increase the Company's capital from Rs 490 crore to Rs 520 crore in order to facilitate the project funding in new and renewable energy areas. The Company's capital adequacy ratio was 31.80% in FY 09 which has further increased to 32.56% in Q2 FY 10. The Company's borrowings were Rs 2256 crore in FY 09 including Loans availed from Banks, debt instruments issued by the Company, foreign currency loans from various international agencies and deposits to the tune of Rs. 692 crore kept as Foreign Currency Deposits for Foreign Lines of Credit. Further, the Company has to retire Rs 157.46 crore of debt in the current financial year.

IREDA's lending to energy projects (excluding loans to constituents of Ministry of New & Renewable Energy) stood at Rs 2532 crore up from Rs 2164 crore in FY08. It has posted an impressive loan sanction and disbursement performance during FY 09. Loan sanctions grew by 80.35% to achieve Rs 1,489 crore in FY09 as compared to Rs 826 crore in the previous year. Disbursement performance has shown similar trend, which has increased by 39.25% to reach a level of Rs 770 crore in FY 09 as against Rs 553 crore. The Company has largely concentrated on three renewable energy sectors - wind power, hydro power, and co-generation and these three sectors together contributed about 93% of the total loans sanctioned during the year.

Over the years, the Company's asset quality has suffered basically due to risky nature of its business activity of funding energy projects which are prone to time and cost escalations. The Company's gross NPAs decreased to 13.34% in FY 09 from the previous year figure of 19.25%, which has further to decreased to 12.63% in Q2 FY 10. Net NPAs have dipped to 3.27% in FY 09 from 11.28% in FY08, which has further decreased to 2.89%in Q2 FY 10. The projects related to small hydro, co-generation, energy efficiency & conservation and bio-mass have contributed largely to asset quality deterioration. However by taking appropriate steps and close monitoring, the Company was successful to contain fresh slippages, to just 0.06% in FY 09 compared to 6.22% in FY 08.

The Company has the support and backing of government of India. The rating assigned to IREDA is specific to the proposed Non-Convertible Debentures issue of Rs 150 crore which is backed by Govt. of India's letter of comfort. Not withstanding the risks involved in the line of activity in which it is engaged, IREDA has been able to put up a decent performance. Brickwork expects IREDA to continue to play its vital role in the renewable energy sector with Government of India's active support.

Copyright ©, 2009, Brickwork Ratings.

Brickwork Ratings has assigned the rating based on the information obtained from issuer and other reliable sources, which are deemed to be accurate. Brickwork has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented "as is" without any express or implied warranty of any kind. Brickwork does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by Brickwork should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument. Brickwork has the right to change, suspend or withdraw the ratings at any time for any reasons. Further, Brickwork should not be held responsible for any losses incurred from publishing or reproducing this report.


CONTACT DETAILS
Dr. A Suresh Kumar, Lead Analyst, Brickwork Ratings, 1-860-425-2742, suresh.kumar@brickworkratings.com
Heema V, Co-Analyst, Brickwork Ratings, 1-860-425-2742, heema.v@brickworkratings.com
Anitha G, Brickwork Ratings, 1-860-425-2742, media@brickworkratings.com
Rajender Walia, Director - Business Development, Brickwork Ratings, 1-860-425-2742, rajender.walia@brickworkratings.com

KEYWORDS
CONSUMER, ECONOMY, MARKETING, BANKING, BUSINESS SERVICES, ENERGY, Financial Analyst, STOCK EXCHANGES

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