Governance Concerns Emerge: Azure Power Energy and Azure Power Solar Energy under Scrutiny
One of the globally renowned credit ratings agencies
The agency has downgraded APE’s senior unsecured rating to B2 from B1 and APSEP backed senior unsecured rating to B1 from Ba3. At the same time, Moody’s has changed the outlooks on the ratings to negative from ratings under review.
Subsequent to today’s rating action, the agency will also withdraw APE’s senior unsecured rating and APSEP’s backed senior unsecured rating. Moody’s has decided to withdraw the ratings because it believes it has insufficient or otherwise inadequate information to support the maintenance of the ratings.
The one-notch downgrade of APE’s and APSEP’s debt ratings is driven by governance issues related to Azure Power Global Limited (APGL) internal controls and compliance, which have delayed the filing of the audited financials for the two RGs and APGL whistleblower complaints; high senior management turnover and the resignation of the auditors for APGL and the two RGs.
The downgrade also considers the increasing probability of a technical default on the bonds and the potential delisting of APGL if the company ceases to file periodic reports with the US Securities and Exchange Commission (SEC).
The negative outlook reflects heightened refinancing risks and governance considerations related to uncertainty regarding the timelines for the filing of audited financials for APGL and both the rated entities.
APGL is currently listed on the New York Stock Exchange (NYSE), which has given the company a second extension to file its financials for the fiscal year ended 31 March 2023 (fiscal 2022) by 15 July 2023 and to update all filings including its fiscal 2023 financials by 15 August 2023.
Governance risks are material to the rating action
Moody’s scores APE’s and APSEP’s environmental, social and governance (ESG) credit impact scores at CIS-5, which indicates the rating is lower than it would have been if ESG risk exposures did not exist. Both APE and APSEP are exposed to material governance risks stemming from their weak internal controls and compliance, as well as the management’s inability to file their audited financials and provide guidance on their financials.
Azure Power Energy Ltd (APE) is a special-purpose vehicle incorporated in Mauritius in 2017 as a wholly-owned subsidiary of Azure Power Global Limited (APGL). The restricted subsidiaries under the US dollar senior notes issuance are wholly or ultimately majority owned by APGL. APE is also a part of Azure RG-3. The restricted subsidiaries operate solar power plants with a total capacity of 611 megawatts (MW) as of June 2023.
Azure Power Solar Energy Private Limited (APSEP) is a special-purpose vehicle incorporated in Mauritius in 2018 as a wholly-owned subsidiary of APGL. The restricted subsidiaries under the USD notes issuance are ultimately majority owned by APGL. They operate solar power plants with a total capacity of 647.5 MW as of June 2023.
Listed on the NYSE, APGL is a leading solar power company in India with a total capacity of 7,425 MW (4,470 MW committed solar plants) across 23 states as of April 2023.
APE is a special-purpose vehicle that used USD note proceeds to subscribe to senior secured denominated bonds and loans denominated in Indian rupee, as external commercial borrowings issued by 16 restricted subsidiaries in the restricted group (RG-3). APE is also part of RG-3.
APSEP is a special-purpose vehicle that used USD note proceeds to subscribe to senior secured INR-denominated bonds and loans, as external commercial borrowings issued by 10 restricted subsidiaries in the restricted group (RG-2). APSEP is also a part of RG-2.
RG-3 and RG-2 represent around 43% of Azure Power Global Limited’s (APGL) operational capacity, and their operational and financial metrics are significant to APGL’s performance. APGL is also a guarantor for the notes issued by APSEP.