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State-run green energy financing firm IREDA files for IPO

27 December, 2017

Indian Renewable Energy Development Agency Ltd (IREDA), a state-owned company that finances green energy projects, has filed a draft red herring prospectus for an initial public offering.

The company will issue 139 million fresh shares through the IPO, which was approved by the government’s Cabinet Committee on Economic Affairs in June this year and is scheduled for the next financial year.

The IPO size is estimated at Rs 850-900 crore ($133-140 million), two people in the know of the matter said, requesting anonymity. This would value IREDA as much as Rs 5,980 crore ($932 million), as per VCCircle estimates.

IREDA will join listed peers such as the state-owned Power Finance Corporation and Rural Electrification Corporation as well as PTC India Financial Services, L&T Financial Holdings and non-banking finance companies like IDFC that provide loans to the renewable energy sector.

India’s renewable energy sector has recorded a number of private equity investments as well as merger and acquisition activities in the recent past. Several private equity investors, such as Actis and Abraaj Group, have set up renewable energy investment platforms in India as the segment has become a preferred asset class because of falling solar tariffs and improving wind technology yields.

VCCircle reported in October that the UK’s development finance institution, CDC Group, was finalising plans to launch a renewable energy platform in India to directly invest in the sector.

Here’s a snapshot of IREDA’s proposed IPO.

Issue
The company will issue 139 million fresh shares through the IPO. The public issue will result in a 15.05% dilution in the government’s stake in the company. The government will get three years from the date of listing to comply with the Securities and Exchange Board of India’s norms that require a 25% minimum public float.

Bankers
Yes Securities (India), Elara Capital (India), IDBI Capital Markets and Securities, and SBI Capital Markets are the merchant bankers managing the IPO.

Lawyers
Cyril Amarchand Mangaldas and Clyde & Co are India and international legal counsel, respectively, to the company and the government on the IPO. J Sagar Associates is the legal counsel to the merchant bankers on the deal.

Company
The company was set up in 1987 and is fully owned by the government. It provides financial assistance to companies and manufacturers of renewable energy projects such as wind, solar, hydroelectric, biomass, co-generation and waste to energy plants, as well as for energy efficiency and conservation projects.

Its product and services offerings include long-term and short-term project and manufacturing loans, bridge loans and bill discounting, and non-fund based assistance such as performance guarantees and refinancing schemes.

About 34.3% of its Rs 1.53 lakh crore loans and advances as on September 2017 were to the wind power sector, followed by 25.1% to the solar power segment.

The firm’s gross and net non-performing assets as a percentage of loan and advances were 5.34% and 3.06%, respectively. Its capital adequacy ratio was 17.06%, compared to the minimum requirement of 15%.

IREDA’s primary sources of funds include domestic and foreign borrowings, internal resources and support from the central government. International funding sources include loans from the World Bank, the Asian Development Bank, German development bank KfW, Japan International Cooperation Agency, European Investment Bank, French Development Agency and Nordic Investment Bank.

Besides its financial offerings, IREDA has set up its own 50 MW solar photovoltaic project in the 200 MW-Kasaragod Solar Park in Kerala. The project was commissioned in September and has begun generating power.

Financials
IREDA reported consolidated net profit of Rs 142.92 crore for the six months ended September 2017 on consolidated revenue (from operations) of Rs 876.97 crore.

The company’s revenue from operations has grown at a compound annual rate of 19.75% from Rs 719.52 crore for 2012-13 to Rs 1,479.63 crore for 2016-17.

Its net profit has risen 17.3% during the same period to Rs 364.59 crore in 2016-17.

IREDA’s cost of funds for the six months ended September 2017 was 7.17%. In each of the previous three financial years starting 2014-15, its cost of funding was 8.5%, 7.45% and 7.06% respectively. Its debt-to-equity ratio was 5.10 as on September 2017 and 4.80 at the end of 2016-17.

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State-run green energy financing firm IREDA files for IPO

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