Brexit No Bar for Indian Company Mulling London for Green Bondsby
Energy Efficiency Services plans to raise about $100 million
Issuance of debt for clean-energy projects may reach record
The state-run company spearheading India’s drive for energy-efficient devices said it’s looking to issue green bonds overseas and that London remains an attractive venue for such fund raising.
Energy Efficiency Services Ltd. may raise as much as $100 million in its first overseas bond sale, Managing Director Saurabh Kumar said in an interview. A team is assessing investor appetite in London and will subsequently explore other markets, he said.
“According to our current information, we will be able to raise these bonds at a lower cost than what we get domestically," Kumar said in New Delhi on Monday.
The U.K.’s shock decision on June 23 to leave the European Union roiled global markets and cast a cloud over the future of London as a regional center of finance. Despite the volatility, Kumar said the English capital remains the "financial hub of the world."
India’s plan to replace energy-intensive appliances such as light bulbs and irrigation pumps with more efficient designs is expected to save as much as 600 billion rupees ($8.9 billion) a year by 2019.
Cost of Debt
Energy Efficiency Services, owned by four state-run power companies, plans to spend $7 billion over the next five years on the project. Residential customers who purchase energy-saving devices from the company pay for them through their monthly electricity bills. Corporations pay the business directly.
While Asia’s No. 3 economy is trying to pivot away from fossil fuels to renewable energy, it remains reliant on polluting coal-fired power plants. Less intensive electricity use would be one way of curbing growth in such emissions.
The company’s cost of debt in India -- where the benchmark repurchase rate is 6.5 percent and the 10-year government yield is about 7.43 percent -- is roughly 10 percent, Kumar said.
"In India, there’s not much of a market for green bonds. That’s the reason we’re looking at the overseas market,” he said.
Almost $56 billion of debt for clean-energy projects may be issued in 2016, topping last year’s record issuance of $46 billion, according to Bloomberg New Energy Finance.
“As environmental issues take more center-stage, as part of social responsibility, both investors and issuers will favor green bonds,” said A.S.T. Rajan, a senior managing director at India-focused money manager Aquarius Investment Advisors Pte in Singapore. “There’re going to be more allocations to green assets in the emerging markets than the developed world.”
Energy Efficiency Services is also seeking to raise money in India and has funding from multilateral agencies including the Asian Development Bank and the World Bank, Kumar said. The company will explore a stock market listing next year, he added.
"As we expand our equity needs will grow,” Kumar said.