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Green bonds become increasingly popular

July 17, 2017

WITH the energy sector in India undergoing dramatic changes, and demand for electricity continuing to soar, power producers are increasingly seeking funding from overseas markets to meet ambitious goals for the future, especially relating to clean and green energy.

Earlier this month, the state-owned Rural Electrification Corporation (REC) launched its first green bond on the London Stock Exchange’s (LSE) International Securities Market (ISM) and raised $450 million to finance renewable energy projects.

The issue was oversubscribed by almost four times and drew in investors from Asia, Europe, the Middle East and Africa. “The funds raised will help promote renewable energy projects across India and aid in achieving our government’s target of 175 gigawatts (GW) of installed renewable energy capacity by 2022,” said P.V. Ramesh, chairman and managing director of the REC.

According to Nikhil Rathi, CEO of LSE, the success of the REC issue was a significant achievement for the company, “underlining the strength of international investor interest in building exposure to India’s green growth story.”

London-headquartered Climate Bonds Initiative, a not-for-profit investor-focused agency, has backed the REC bond issue.

“This certified bond will help bring green energy to rural Indian villagers and clean power to where it’s needed most,” said Sean Kidney, CEO and co-founder of Climate Bonds Initiative. “It’s another step towards the nation’s 2022 renewable energy target.”

The LSE, which launched its dedicated green bond segment in 2015, today has 45 such bonds listed on the exchange. These companies have raised about $12 billion so far.

The REC issue was the third by an Indian company on the London exchange; last year, Axis Bank and the National Thermal Power Corporation raised about $800m from the LSE.

“This certified bond will help bring green energy to rural Indian villagers and clean power to where it’s needed most”

The International Capital Market Association (ICMA) earlier introduced its ‘green bond principles’ as voluntary guidelines for the issue of green bonds.

The Securities and Exchange Board of India (SEBI) endorsed the principles in 2015, encouraging Indian companies to borrow ‘green funds’ from abroad.

Almost half a dozen majors are also planning to issue bonds to fund their green energy projects in India. The Adani Group, IL&FS Energy, Azure Power (which is listed on the New York Stock Exchange, and has power projects in India), Continuum Energy and the Greenko Group are among those planning to raise about $2bn in the current fiscal year, which runs from April to March.

India, which signed the Paris climate deal in 2015, and which reiterated its commitment to the deal recently even after the United States withdrew from the agreement, has been aggressively going ahead with plans for renewable energy.

The government has set a target of 175GW of clean energy to be produced by 2022 and at an investment of about $200bn. Solar energy would account for about 100GW, wind about 60GW and hydro and bio would add up the rest.

At present, less than 60GW of renewable energy is generated in India. The country’s total power generation capacity is around 305GW, with thermal accounting for the bulk of it.

Piyush Goyal, the minister of state (independent charge) for power and renewable energy, notes that the cost of renewable energy generation has been brought below grid parity recently. “Reduction in the cost of equipment, finance and tariff provides a good potential for growth of the renewable energy sector,” he says.


OTHER state-owned and private power producers are also keen on tapping global funds — including those from London — to generate green energy. Energy Efficiency Services Ltd (EESL), which has been promoted by public sector firms including NTPC, REC, Power Finance Corporation and Power Grid Corporation, plans to raise about $400m from multilateral agencies and international bond markets.

EESL is negotiating with the World Bank for a $300m loan and plans to raise $100m through masala and green bonds in London. The company earlier raised a $200m loan from the Asian Development Bank and €300m loan from Germany’s KfW development bank and the French Development Agency.

The Indian Renewable Energy Development Agency (IREDA) has sought official clearances for a $300m green masala bond issue for funding its ‘green’ projects. The IREDA, which plans to hold road shows in Singapore, Hong Kong and London, will use the funds for new projects as well as for refinancing renewable energy projects.

Earlier this month, the International Finance Corporation (IFC), part of the World Bank Group, invested $103m in the first green bonds issue in India, undertaken by L&T Infrastructure Finance Company, part of the multibillion-dollar Larsen and Toubro group.

According to an IFC spokesperson, India needs about $2.5 trillion to meet its climate change mitigation targets by 2030. “This green bond subscription will serve as a catalyst for corporates to issue green bonds and provide the impetus for financiers to stay invested for a longer term, which is essential for long-gestation, capital-intensive infrastructure projects,” said Jun Zhang, country head for the IFC in India.

In the past, and much before SEBI finalised the norms for ‘green bonds’, the IFC had invested $50m in Yes Bank and $75m in PNB Housing Finance through instruments that would qualify as green bonds.

IFC has been investing significant amounts in several ‘green’ projects in India. It created India’s first private sector ‘green investment bank’ with the Tata Group, known as Tata Cleantech Capital Ltd, and invested $40m in it.

Last year, it committed investment of up to $125m in Hero Future Energies, and facilitated debt funding of $177m to Ostro Energy. So far, the World Bank subsidiary has invested about $1.2bn in climate-friendly projects in India.

Greenko, one of the largest private players in the renewable energy segment in India, is also raising about $1.1bn through an offshore dollar issue, which will also be the largest green bond sale in Asia.

Last year, Hyderabad-based Greenko, which is backed by Singapore’s GIC and the Abu Dhabi Investment Authority, acquired the Indian assets of SunEdison at almost $400m. The company, which has a 2.5GW operational portfolio of wind, solar and hydropower projects, plans to raise this to 3GW by this year’s end.

While green bonds are becoming increasingly popular in India — with more than $2bn worth of such bonds issued last year — it still ranks a distant seventh after the US, France, China, Germany, the Netherlands and Sweden in terms of raising green funds.

Published in Dawn, The Business and Finance Weekly, July 17th, 2017