Bernstein remains optimistic on REC and PFC over financing renewable projects

Bernstein believes that a bigger concern for PFC-REC is their Rs 71 billion exposure to Adani Power’s Bangladesh power plant where payment challenges under the new Bangladeshi government have created a certain level of uncertainty.

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26 Aug, 2025 12:21

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Shares of power financiers REC and PFC have been under pressure over the last few days following the US SEC allegations against Adani Group. Global research major Bernstein, however, believes that the Street reaction may be slightly misinformed, as the loans given by REC to Azure have nothing to do with the controversy. Bernstein continues to remain optimistic on both REC and PFC on opportunities for financing renewable projects.

Shares of both REC and PFC registered strong gains on Friday with the latter gaining more than five percent. On November 21, shares of REC and PFC lost 4.90 percent and 3.56 percent, respectively, as US SEC allegations against Adani Group came out in the open.

Power Finance Corporation or PFC is a public sector company engaged in financing power projects. REC is a wholly-owned subsidiary of PFC.

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Breaking down the controversy and its impact

The Bernstein report clarifies that REC’s loan exposure to Azure Power (Rs 24 billion), pertains to 615 MW of fully operational solar assets and is unrelated to the controversy. These projects, it explains, were commissioned between 2016 and 2019, have stable cash flows, and are backed by reliable Power Purchase Agreements (PPAs) with entities such as SECI, Gujarat Urja Vikas Nigam Limited, and others. Additionally, REC recently refinanced Azure’s $350 million bond with this facility.

The ongoing controversy, on the other hand, according to Bernstein, pertains to a 12 GW solar-plus-manufacturing tender awarded by SECI (Solar Energy Corporation in India) in 2019, which Adani Green (8 GW) and Azure Power (4 GW) won. Azure has since exited the project by withdrawing or terminating its PPAs, while Adani Green claims to have signed PPAs for the entire 8 GW. However, the report notes that Solar Energy Corporation of India (SECI) data suggests that 1.8 GW remains unsold or unsigned.

Bernstein analysts note that even if PPAs are terminated, the assets, including the strategically valuable land with transmission access, can be repurposed for other projects in Adani Green’s pipeline.

The report also adds that the challenge comes when lenders take exposure at holding company level rather than SPV level, and to their understanding PFC-REC don't lend at a holding company level.

Financial impact of the controversy

The report notes that Adani Group’s power entities, including Adani Green, Adani Power, and Adani Energy Solutions, have a combined gross debt of Rs 1,200 billion, of which Rs 400 billion is INR borrowing from financial institutions, including PFC and REC.

“Considering the financial performance of these 3 Adani entities continues to be strong (combined trailing 12 month EBITDA of Rs 364 billion) and that the loans are backed by strong assets, we are not that concerned,” stated the report.

Explaining Adani Green’s borrowings for its solar-plus-manufacturing projects, the brokerage notes that they are structured through multiple Special Purpose Vehicles (SPVs).

“As of March 2024, these projects have received Rs 52 billion in INR loans from financial institutions and Rs 27 billion in foreign currency borrowings,” it says. The report explains that such loans are asset-backed, with the land and solar infrastructure serving as collateral, ensuring that financial institutions like PFC and REC have minimal exposure to holding company-level risks.

Outlook for PFC, REC

While Adani's Azure controversy should not be a concern, Bernstein believes that a bigger concern for PFC-REC is their Rs 71 billion exposure to Adani Power’s Bangladesh power plant where payment challenges under the new Bangladeshi government have created a certain level of uncertainty.

Despite market volatility, Bernstein remains optimistic on both PFC and REC and sees an enhanced buying opportunity in the recent correction in their stock prices. The report notes that renewable energy assets, with their bond-like returns and flexibility, remain a resilient investment class, even under challenging market conditions.

The research firm also continues to sees opportunities for REC and PFC as the spread between US and Indian 10-year government bond yields remains narrow, discouraging Indian renewable players from issuing USD bonds and instead favouring domestic INR loans. Additionally, the report adds that approximately 50 percent of USD bonds issued by Indian companies are set to mature by 2027, creating significant refinancing opportunities for PFC and REC.

Shares of both PFC and REC have gained nearly 49 percent over the last one year.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.