State Renewables Financier IREDA heads for an IPO, With AP’s Shadow Looming Large

Indian Renewable Energy Development Agency Ltd (IREDA)’s final regulatory approval clears the way to the much-awaited initial public offering (IPO) for the state-owned firm. While the firm had last targeted September end, now the hope is to close the issue before 2019 ends.

The firm had tried much earlier too for the IPO, back in July 2018 when it had received the nod from SEBI. However, it had shelved plans wing to poor market conditions. Conditions that have by all accounts not really changed drastically and in renewables, in fact, might have actually got worse.

For IREDA, which finances green energy projects, the regulatory clearance is one more effort to get a more public profile as a listed entity, besides raising some much-needed equity capital through the issue of 139 million fresh shares at a premium. The sale is expected to be approx 15 percent of its equity base, currently 100 percent government-owned. The firm disbursed loans for close to Rs 9385 crore in 2018-19, and reported a profit after tax of Rs 244 crore, a steep fall over the Rs 370 crore figure it had reported in 2017-18.

The plans are to raise an estimated Rs 700-750 crore from the IPO, itself a climb down from a reported plan to raise Rs 850 crore earlier. Which would indicate a target price in the range of Rs 50, or below.

Subject to its successful completion, IREDA will join listed peers such as the state-owned Power Finance Corporation as well as PTC India Financial Services besides other entities that provide funding to the renewable energy sector.

So just why is IREDA’s issue important?

On the face of it, the firm as a key financier of renewable projects, a sector that is already almost stalled due to issues linked to financing and policy, its health is important.

Secondly, as a government entity, IREDA is one way for the message to go across to the government about the health of the sector. With reported gross NPA’s of over 6 percent for the past three years and an almost 25 percent exposure to Andhra Pradesh based projects, IREDA is exposed to the political idiosyncrasies being witnessed in that state very strongly.

One hopes that a wish for its success will push the government to move faster to resolve the crisis the Andhra Pradesh renegotiations and reneging on signed contracts has caused to the sector.