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Renewable energy company Greenko reprices high-yield India

Renewable energy company Greenko reprices high-yield India


Indian renewable energy company Greenko has taken advantage of its Singapore ownership and surging demand for Indian credit to price $500 million of Single B rated bonds below 5%.The seven non-call three Green bonds, which priced last week at 4.875%, popped 1.5 points in the aftermarket to 101.50/101.60, or a yield of 4.59% on a bid. They later settled at 101.1.The aggressive outcome was mostly put down to expectations that the majority investment of Singapore sovereign wealth fund GIC would help lower the issuer’s high leverage and improve its financial risk profile.

Greenko sold a majority stake to GIC last November and raised a further $230 million in June from GIC and the Abu Dhabi Investment Authority.However, bankers also stressed that global enthusiasm for emerging-market credits from yield-starved investors had a hand in the outcome.”The final pricing is not reflective of a high-yield bond,” said a syndicate banker on the print. “We were able to achieve that because India is strongly bid, and high yield is strongly bid because of a lack of supply.”Demand for high-yielding paper has slashed yields on Single B rated Indian paper. Greenko’s final pricing is less than half the double-digit yields that similarly rated credits locked in previously.

Property firm Lodha Developers sold debut US dollar five non-call three notes at 12% for a Ba3/B+ rated print in March 2015, while Indiabulls Real Estate sold US$175m five non-call three notes at 10.25% in November 2014.Greenko’s new 144A/Reg S notes are expected to score ratings of B+ from both S&P and Fitch.In exchange for tight pricing, bankers had to sacrifice some attention from US investors, who halved their allocation relative to Greenko’s debut two years ago. Instead, Asian buyers, taking heart from GIC’s involvement, helped drive a hefty $4.2 billion order book. Asia accounted for 59%, the UK, the EU and the Middle East made up for the rest.

“GIC was a huge plus. I won’t say they would have struggled, but clearly it gave a massive boost,” said another banker on the deal. CONTROVERSY Greenko’s second financing also validates a structure that had attracted some controversy after Greenko Dutch’s $550 million five-year non-call three print in July 2014.The proceeds of the new issue will be used to purchase rupee bonds that a group of Greenko’s eight onshore subsidiaries plan to issue. Those onshore units, which own hydroelectric and wind-power assets, will use the funds to repay external and intercompany debt, fund operating expenses and meet working capital needs.

A similar use of proceeds two years earlier had seemingly triggered a warning from the Reserve Bank of India that issuers were not allowed to provide guarantees or create contingent liabilities for borrowings of offshore units, or use funds onshore that have been raised offshore in such structures, unless explicitly permitted under existing regulations.Concerns that the RBI circular was effectively outlawing Greenko Dutch’s format prompted those bonds to fall. Sources, however, said the RBI had never sent a formal notice to Greenko to raise concerns about the funding structure.The same sources said Greenko’s latest deal was compliant because the bonds were an offshore liability of an offshore company and that the security of Indian assets was only provided to the rupee bonds. They said they met RBI officials before tabling the new deal.

“Project finance debt in our current capital structure limits our ability to grow rapidly. We seek to optimise our capital structure by constantly assessing the benefits and suitability of utilising different funding sources,” says a preliminary prospectus. PRICING The lack of Single B Indian peers left investors looking at Olam International’s $300 million 4.5% 2021s, since Singapore state investment company Temasek Holdings holds a 51.4% in the commodities trader. Olam’s bonds were trading at the 4% handle. Additional references from the roadshow pinned feedback around the low to mid 5% area, said bankers.

Greenko’s outstanding US dollar notes, issued in the name of offshore subsidiary Greenko Dutch, were not used as a direct comparable because these were trading to call and were spotted at 108.S&P says GIC will improve Greenko’s risk management, help reduce its high leverage and fund future growth. The rating agency expects debt to Ebitda to drop to 5x as of March 2018 from over 7x in the prior year.GIC has also adopted a strict hedging policy, which has been implemented on Greenko Dutch’s notes by hedging 100% of the principal from a previous level of just half. As a result, Fitch upgraded those notes to B+ from B last week, while S&P has a positive outlook on its B+ rating.

Greenko Energy Holdings, the ultimate holding company, is the parent guarantor on both the new notes and those of Greenko Dutch.Greenko is GIC’s first and sole direct corporate investment, where it has a majority stake and board control. However, Greenko is a relatively small investment for GIC and is one of many assets in the sovereign wealth fund’s large portfolio. GIC owns a 72.58% stake, while ADIA owns 15.31%.A Green bond report from Sustainalytics said wind and hydro-power projects in emerging markets like India face issues, such as a loss of biodiversity and displacement in rural areas, but Greenko’s internal assessment measures help mitigate the risks.

KPMG will verify the allocation of bond proceeds to eligible projects.Deutsche Bank, Investec, JP Morgan, Morgan Stanley and UBS were joint lead managers on the latest print.

Anand Gupta Editor - EQ Int'l Media Network


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