Green bond issuance for renewable energy

Context

• India’s power sector is one of the largest in the world, despite per capita consumption being less than a third of the global average.
• Although India has seen an increase in the amount of generation capacity, 660 million Indians still lack reliable electricity, with many relying on biomass for supply.
• Whilst India only issued its first green bond in 2015, Singapore accounted for 55% of all green bonds in the ASEAN region in 2016 to 2019.

Stakeholders involved

• Company: Continuum is one of the largest providers of renewable power to corporates in the commercial and industrial sectors in India. It is majority-owned by Morgan Stanley.
• Investor: IFC is a member of the World Bank Group and uses capital and expertise to create markets and opportunities in developing countries.
• Bookrunner: Deutsche Bank was the bookrunner.

Problem

• Fiscal deficits in the post-COVID-19 world have made it more difficult for to finance infrastructure projects.
• Indians' reliance on biomass (such as firewood) has contributed to poor air quality and health hazards, making Indian cities some of the most polluted in the world.
• Overall energy investment in India fell by 15% in 2020.

Innovation

• IFC subscribed to 10% of the bond issue, worth USD56 million. The total raising was USD561 million.
• Bonds were issued on the Singapore Stock Exchange. Other Indian companies such Export-Import Bank of India, Industrial Development Bank of India, and Greenko had already issued sustainable bonds through Singapore between 2015 and 2016.

Timeline

Results and impact

• The bond placement was seven times oversubscribed, indicating strong investor interest in the sustainable finance sector and allowing Continuum to use the proceeds for refinancing existing debt.
• The issuance contributed to continued growth of India’s renewable energy sector, which grew 4.9% in 2020 despite the COVID-19-induced shutdown. This trend must continue if India is to reduce its dependence on coal, which currently accounts for 70% of energy supply.
• Solar power is projected to match coal’s share of electricity production in India within the next two decades, with solar expected to experience rapid growth, rising from 10% of total generation (2020) to over 30% of India's total energy generation (2040).

Key lessons learnt

• IFC backing can encourage institutional investor participation in capital raisings, and improve financing for companies in emerging sectors such as renewable energy.
• By issuing bonds on the Singapore Stock Exchange, Continuum was able to access a well-established market for sustainable finance. This market benefited from generous government support (such as the sustainable bond grant scheme) and investor attention, contributing to the oversubscription.