One of India’s leading solar power project developers – Azure Power – managed to raise $500 million through bond sale to overseas investors.

The proceeds from the bond sale will be used to purchase rupee-denominated debentures and loans of subsidiaries that directly own several solar power projects across India. The company has more than 1,100 megawatts of solar power capacity under construction.

The bond issue received tremendous response as investors offered to put in around $1 billion against the bond size of $500 million.

Azure Power will offer a yield of just over 5.5%. This is a pretty attractive rate for international investors but for Azure Power this is a much better deal. The yield it will pay is less than even the primary lending rate of the Reserve Bank of India. If Azure had raised these funds from Indian banks it may have had to pay as much as twice as much.

This is perhaps one of the most critical reason for Indian private sector renewable energy developers to raise funds from international markets through bonds. Indian banks are currently overexposed to the power sector and several thermal power plants have become non-performing assets due to several reasons including, over-supplied market, increased coal costs and competition from renewable energy.

As a result, renewable energy sector finds it difficult to raise debt from Indian banks even if the latter are willing to provide funding. Solar power developers are facing sector-specific issues as well. We reported in May this year that solar power tariff bids in India have collapsed 26% in just 3 months. This sharp correction and aggressive bidding by developers may be making Indian lenders nervous as they could be apprehensive of financial sustainability of the projects.

Recently, another India-based renewable energy developer Greenko Energy Holdings also raised $1 billion in the largest green bond in Asia. The company had acquired assets from SunEdison India following bankruptcy of latter’s American parent.

Funds raised from the issue will serve multiple purposes for Greenko. About half of funds will be used to refinance a $500 million dollar bond issue floated by the company in 2014. Proceeds from the issue will also be used to retire debt it inherited along with the acquisition of SunEdison India’s assets.

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