IREDA IPO: Will increase lending to new clean energy segments, says CMD

Pradip Kumar Das

Indian Renewable Energy Development Agency (IREDA) will be the first public sector company to hit the capital market with an initial public offer (IPO) after Life Insurance Corporation of India’s debut issue in May 2022.

The non-banking financial company (NBFC), which lends for renewable energy projects, will offer shares in the band of Rs 30-32 each. The issue will open on November 21 and close on November 23.

In an interview with Moneycontrol, Chairman and Managing Director Pradip Kumar Das talked about loan growth, expansion in new energy segments and the company's plan to extend foreign currency loans.

Edited Excerpts:

For you, there have been two unsuccessful IPO attempts in the past. Since then, your business and the renewable energy industry have changed. How do you see the timing for the IPO?

When we come to the market, we have to ensure that there is a win-win situation for all. It is not only the corporates that need funds. Investors need to have a sustainable future as far as returns and wealth creation are concerned. The timing now is the most perfect, given that the renewable development in the last nine years in the country has been quite phenomenal.

Other players have also started coming into this industry in the last nine years. The IREDA has been single-handedly financing renewable energy (RE) projects for 27 years. It has a comfort position of handholding the RE sector for development. We have a fair amount of business opportunity and we require a fair amount of capital.

The government has infused Rs 1,500 crore in March 2022. Through various modes of dividend exemption, we have ploughed back profit to the tune of a similar amount. We have to comply with the RBI exposure norms as well as CRAR (Capital to Risk-Weighted Assets) requirement.

We have a ‘AAA’ credit rating, denoting stability. We are very careful and cautious. We can leverage fully, to the extent of eight times, but we'll be keeping it within 7 and 7+ only, so that we continue to be stable.

Renewable energy targets will need Rs 30 lakh crore, of which Rs 12 lakh crore will be from NBFCs like PFC, REC and IREDA. We will play an important role for building a sustainable economy and to ensure a healthy environment for our future generations.

Watch: IREDA IPO: 'We Are India's Largest Pure-Play Green Financing Entity,' Says Chairman Pradip Kumar Das

Your loan book has grown three-fold in the last three years. With Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) diversifying and moving aggressively to finance RE projects, will the growth rate be sustainable for IREDA?

We are a pure-play green finance company, with an established track record and have a very mature relationship with developers. In the RE space, in the last 6-7 months, they (PFC and REC) have aggressively signed many MoUs and communicated to the developers that they are here.

We have the expertise of dealing with private developers and the expertise in dealing with new and renewable sources. We will definitely continue to be the most preferred lender in the project construction stage. We have engaged Boston Consulting Group (BCG). They are handholding us and their presence has already been reflected in our results and governance. If you look at the last three years, our loan book, which was at Rs 23,000 crore plus in March 2020, has added more than Rs 24,000 crore. That means, in three years, we have added more business loan book than what we did in 33 years.

The IPO includes an offer for sale by the government and a fresh issue by the company. How would you be placed for your debt-to-equity ratio with the proceeds, and what headroom would you have for future borrowings?

We can leverage a maximum of up to eight times, but our strategy would be to leverage around 7 to 7+, so that we maintain a healthy CRAR of around 17, because we need to sustain our credit rating of ‘AAA’ stable.

For the last year and a half, we have supported CBG (Compressed Biogas) and ethanol, and there are new and emerging opportunities like e-mobility and green hydrogen offshore wind.

So we'll be restricting to the extent our exposure allows as far as projects and groups are concerned. We can go for 30 percent of any entity and 50 percent of any group. We have already done a big transaction for SJVN, where we have lent jointly with Bank of India and IIFCL. We have been accorded infra status by the RBI and we will be financing green energy projects. We have signed MoUs with three more banks– Bank of Baroda, Union Bank and Bank of Maharashtra. A couple of banks are also in the pipeline. So after we leverage fully, we will jointly lend with these banks.

IREDA’s net NPA (non-performing asset) ratio has come down significantly in the last two years to 1.66 percent, as on FY23. Your net interest margin (NIM) looks lower than peers in your DRHP. What is your guidance on these two accounts?

When you are developing a sector, you should not expect a super NIM. Our net NPA has further come down to 1.65 percent in September. We have a very robust review- monitoring mechanism in place. Our NIM has improved and it will reflect in the December quarter result. We have enhanced interest rates, post July.

Also Read: IREDA IPO: 10 things to know before subscribing to Rs 2,150 crore issue

What is the percentage of new and emerging businesses in your portfolio right now and what is your target?

It is 18 percent right now. We have a strategic plan to have 50:50. The emerging space and new sources are challenging, so the risk premium will be more and NIM will be higher there.

Do you plan to apply for a universal banking licence?

Our only aspiration is to partner with the government of India, as a developer and stakeholder for the fastest RE development by 2047, with best quality corporate governance standards. As of now, there is no such plan.

Are you open to equity investments in renewable projects?

We have to develop the sector. For that, we will revisit our philosophy and methodology, from time to time. We have modified our object clause one to two years back to bring in certain changes to capture the new and emerging businesses. We have requested the government of India to give us allocation for 54EC (Capital Gain) Bonds allocation. We have also taken NOC from NITI Aayog and DIPAM, and are awaiting NOC from the RBI for opening an office in GIFT City. This will help us raise funds and lend foreign exchange to domestic developers.