Subsidized Credit-Enhancement Bond Facility for Renewable Energy Proposed

The Centre for Energy Finance has proposed that a subsidized first-loss cover facility to credit-enhanced bonds raised by the developers and institutions looking to refinance their underlying projects should be introduced in India. This is required due to the challenges faced by domestic financial institutions and the limitations of both the domestic and the international bond markets.

What is Subsidized Credit-Enhancement Bond Facility?

This is a fully-funded facility with a facility manager, under the guidance of the board of trustees. This will pay off the bond investors in the event the issuer is unable to service the coupon and repay the principal. Apart from that, the guarantee can be accessed multiple times during the tenure of the bond within the eligible amount.

Why is this facility required?

The renewable energy installations like any infrastructure project are characterised by a debt-heavy capital structure. Now to complete the target of this sector by 2030, more debts will be required by the players. But the banks and the NBFCs do not have the kind of capacity to extend credit facility to the power sector. Also, once the large infra projects will be rolled out, banks will mainly focus on those since they are government-backed projects. That way, renewable energy projects will be deprived of finance required by them.

Month: Current Affairs - July, 2020