S&P Global Ratings expects high leverage for Indian renewable energy companies
“India Renewables: Growth Trumps Deleveraging” a new report from S&P Global Ratings expects high leverage across the RE sector resulting from multi-decade growth opportunities in the Indian renewable energy space.
S&P Global Ratings, a global credit rating agency, stated on Monday that it expects the Indian renewable energy sector to be highly leveraged due to growth potential in the Indian RE space.
S&P Global Ratings stated in its recent research report “India Renewables: Growth Trumps Deleveraging” that Renewable energy’s multi-decade growth potential options in India will result in continually strong leverage across the sector..
S&P Global Ratings analyst Abhishek Dangra noted that “Weaker operating performance, late receivables collections, and hefty capital expenditure may cast an impact on Indian renewables’ credit profiles.”
“This is despite the fact that the industry’s fundamentals are strong. Renewables are economically competitive with conventional fuels and benefit from India’s aggressive energy-transition plans “Dangra elaborated.
According to S&P Global Ratings, the analysis debunks a number of fallacies about Indian renewable energy projects. Wind and solar power generation, for example, might be unreliable if weather conditions are not favorable. Output assumptions might be too optimistic, resulting in cash flow shortfalls.
The rating agency noted, “In our study of the operating performance of individual projects of rated firms from 2016 to 2021, we found that even conservative generation probabilities were missing more than 40% of the time. Consequently, cash flows could be reduced by 10% to 17% compared to management’s expectations.”
The industry’s receivables will continue to be strained owing to the sector’s reliance on state distribution corporations. As state-owned distribution utilities suffer from weak financial health, this results in routine delays in payments..
Dangra stated that “Some investors believe that this industry would be able to improve its income-to-debt ratios encouraged by strong financial sponsors and equity-financing options.” “However, additional equity, in our opinion, will be spent on expansion rather than deleveraging,” he added.
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