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Rating Action:

Moody's affirms ratings of Indian Renewable Energy Development Agency; changes outlook to negative

14 Jan 2019

Singapore, January 14, 2019 -- Moody's Investors Service has affirmed the Baa3 local and foreign currency issuer rating of Indian Renewable Energy Development Agency Ltd. (IREDA) and changed the rating outlook to negative from stable.

In addition, Moody's has affirmed the (P)Baa3/(P)P-3 senior unsecured rating of IREDA's medium-term note program and Baa3 rating assigned to the senior unsecured debt issued from the program.

Moody's has also affirmed IREDA's Baseline Credit Assessment (BCA) of ba3.

And, Moody's has withdrawn the outlook on IREDA's existing senior unsecured instrument rating for its own business reasons. This action has no impact on the outlook for IREDA's local and foreign currency issuer rating. Please refer to the Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com.

RATINGS RATIONALE

NEGATIVE OUTLOOK

The rating actions take into account the deterioration in IREDA's financial performance, due to an increase in problem assets, as well as a significant decline in profitability, driven by certain changes in accounting norms. The negative rating outlook reflects Moody's expectation that the company's ba3 BCA could come under pressure, if the weak financial performance is sustained over the next 12-18 months.

IREDA's nonperforming loan ratio rose to 7.4% at 30 September 2018, a significant increase from 6.0% at 31 March 2017 and 3.5% at 31 March 2013. In addition, the company's profitability, as measured by net income/average managed assets, declined to 0.8% on an annualized basis in the first half of fiscal 2019 (the financial year ending 31 March 2019) compared with 2.0% in fiscal 2018 and 2.3% in fiscal 2017. This decline in profitability has been driven by lower core profitability, as well as the one-off impact of higher provisions for funded interest on restructured loans.

The company's capitalization has also declined, owing to strong credit growth and mark-to-market losses from its unhedged foreign currency exposure. Tangible common equity/total managed assets declined to 10.5% at 30 September 2018 compared with 12.3% at 31 March 2018 and an average of 18.1% for fiscal 2014-17. IREDA plans to undertake an initial public offering (IPO) and until the IPO materializes, Moody's expects the company's credit growth to slow.

Nevertheless, these weaknesses are somewhat balanced by IREDA's stable funding and liquidity profile, which is supported by its long-tenure borrowings from multilateral agencies which have been mostly guaranteed by the Indian government (Baa2 stable). Based on data at 31 March 2018, borrowings from multilateral and bilateral agencies accounted for around 53% of its total borrowings, with about 89% of such borrowings guaranteed by the Indian government. In addition, the company's short-term liquidity position benefits from its long-tenure borrowers, given that around 43% of the borrowings will mature in or after 2022.

AFFIRMATION OF ISSUER RATING

The affirmation of IREDA's Baa3 issuer rating takes into account its BCA of ba3, based on Moody's Finance Companies methodology, and three-notches of government support reflecting Moody's assessment of a high level of linkage between IREDA and the Government of India.

IREDA is the nodal agency to route the government's various subsidies and grants to the renewable energy sector. The company is also the program administrator for the Ministry of New and Renewable Energy (MNRE) schemes, such as the generation-based incentive scheme for wind and solar power projects, a rooftop solar power program and a capital subsidy scheme for solar water heating systems.

Renewable energy is an important component of India's energy-planning process. The MNRE aims to add 175 gigawatts to the country's renewable energy capacity by 2022, with a roadmap supported by policy and regulatory help for the sector. Furthermore, the Reserve Bank of India has included renewable energy financing in the priority-sector lending category.

Owing to this role, IREDA will likely continue to benefit from government support. This support was in the form of regular equity infusions until fiscal 2015, as well as guarantees for most of the company's borrowings from multilateral agencies and access to tax-free bonds, with such bonds providing a low-cost funding source.

WHAT COULD MOVE THE RATING UP

Given the negative rating outlook, Moody's will unlikely upgrade the company's ratings during the outlook horizon of the next 12-18 months.

Nevertheless, the rating outlook could return to stable if: (1) the company returns to its historical levels of profitability on a sustained basis, and (2) asset quality metrics remain stable and are supported by a strengthening of IREDA's loss-absorbing buffers.

WHAT COULD MOVE THE RATING DOWN

Downward pressure on the ratings could materialize through a continued deterioration in the company's asset quality, and/or a significant weakening in capitalization or profitability. In addition, any changes in the company's policy role could also negatively impact the ratings.

The methodologies used in these ratings were Finance Companies published in December 2018 and Government-Related Issuers published in June 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Indian Renewable Energy Development Agency Ltd. is headquartered in New Delhi, and reported total assets of INR222 billion at 30 September 2018.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Alka Anbarasu
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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