IREDA Aims for Growth Through FPO and Reduced Borrowing Costs

The Indian Renewable Energy Development Agency (Ireda) is charting a course for ambitious expansion. Led by Chairman and Managing Director (CMD) Pradip Kumar Das, the company is pursuing a multi-pronged strategy that involves a follow-on public offer (FPO), cost-cutting measures, and potential benefits from a green bond market.

Ireda’s primary goal is to achieve a monumental leap in its assets under management (AUM). The current figure stands at ₹63,200 crore as of June 30th, 2024, but Das envisions a staggering growth to ₹3.5 trillion by 2030. To fuel this expansion, Ireda has already submitted an application for an FPO to the government. Subject to approval, the agency aims to raise ₹4,000-5,000 crore through a fresh equity issue.

“This capital infusion is crucial to maintain a healthy CRAR (Capital to Risk-Weighted Assets Ratio) by the end of this fiscal year,” Das emphasised. A strong CRAR signifies financial stability, allowing Ireda to sustain its impressive growth trajectory.

One key element of Ireda’s cost-cutting strategy hinges on a potential inclusion under Section 54EC of the Income Tax Act in the upcoming budget. This inclusion would grant investors in Ireda’s bonds a tax exemption on capital gains. This would make Ireda’s commercial papers more attractive, leading to potentially lower coupon rates.

“Section 54EC inclusion could translate to a cost-of-borrowing reduction of 5-10 basis points,” Das projected. However, he acknowledged the challenges associated with raising bonds under this section, emphasising the need for robust pan-India brand recognition to attract investors.

Ireda’s average cost of borrowing has already shown a slight improvement, dipping from 7.81% on March 31st to 7.78% on June 30th. Looking beyond this immediate progress, Das has urged the government to define a green bond market taxonomy in India. Such a framework could provide companies like Ireda with access to lower borrowing costs through green debt instruments.

“Currently, even though our lending is entirely directed towards green energy projects, we don’t reap any benefits associated with that status,” Das noted. By implementing a green bond market, Ireda hopes to bridge this gap and unlock further cost advantages, ultimately accelerating its journey towards becoming a clean energy powerhouse in India.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.