Morgan Stanley backed RE firm Continuum to refinance $400 mn bonds

Continuum Green Energy, an Indian renewable energy firm backed by Morgan Stanley Infrastructure Partners, plans to refinance its $400 million floating rate bonds with a three-year fixed rate paper to ease interest rate and currency risks.

Continuum’s interest savings will likely be minimal despite a lower funding cost due to the proposed issuance of a larger amount. The company will not face interest rate risk or be exposed to changing Secured Overnight Financing Rates, according to rating agency Standard and Poor’s (S&P).

S&P Global Ratings on Monday assigned its ‘B+’ long-term issuer credit rating to Continuum. It also assigned ‘B+’ long-term issue rating to the senior secured notes that Continuum Energy Aura Pte. Ltd., of Continuum Green Energy is the parent, proposes to issue.

Continuum will have lower currency risk owing to less aggressive hedging for the proposed bonds. The company intends to hedge its cross-currency exposure for the full tenor of the proposed notes, instead of its current approach of hedging for a period shorter than the full tenor. Continuum will hedge through a call-spread option structure, similar to most India-based renewable peers.

The company benefits from its differentiated positioning in the less crowded and more profitable commercial and industrial (C&I) energy market and it has faster receivable collection than peers, said S&P. However, smaller scale with limited project diversity and high leverage limit Continuum’s credit profile.

With five projects being added, Continuum’s total operating capacity will increase to 2.3 gigawatts from 1.3 Gw. The company does not intend to grow aggressively beyond its target capacity of 2.3 GW by the end of fiscal 2024.

The execution risk on projects under construction has dropped, given that they are on track for commissioning over September-December 2023. Pipeline projects will start contributing full-year cash flow in fiscal 2025, supporting higher earnings and stronger ratios.

Continuum has completed major work on the commissioning of substations and transmission lines. The projects are in the final phases of commissioning, pending the completion of installation of wind turbines and solar panels.

The company’s capital expenditure (capex) will peak in fiscal 2024 to about $541 million due to planned capacity additions, said S&P. Capex is largely debt-funded, and the company has secured adequate funding from the domestic market. The total adjusted debt is estimated to increase to $1.4-1.5 billion over financial years 2024-2025, from $1 billion in Financial Year 2023.