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Rupee derailing $1.6 billion wind farm revival: Corporate India

Bloomberg Businessweek|Natalie Obiko Pearson |September 2, 2013
AsiaJobs and Economy

A weaker currency inflates overseas debt when repaid with local earnings, increasing finance costs, while also boosting prices of imported components and other raw materials. The average yield for dollar debt of Indian companies jumped as much as 2.56 percentage points to a 19-month high of 6.32 percent on Aug. 22.


The rupee's biggest plunge in 20 years is endangering the recovery of India's $1.6 billion wind power industry as higher finance and import costs negate benefits from a government subsidy restored last month.

The currency's 17 percent slide against the dollar this year has stalled new investment plans, said Mahesh Makhija, director of renewables at the Indian unit of CLP Holdings Ltd. (2), the largest owner of farms in India. Turbine makers such as Suzlon Energy Ltd. (SUEL) and Gamesa Corp Tecnologica SA (GAM), who count India among their top three markets, may raise prices, he said.

After a record 42 percent drop in installations in the 12 months through March, the industry is set to beat the U.S. for the first time this year after …

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The rupee's biggest plunge in 20 years is endangering the recovery of India's $1.6 billion wind power industry as higher finance and import costs negate benefits from a government subsidy restored last month.

The currency's 17 percent slide against the dollar this year has stalled new investment plans, said Mahesh Makhija, director of renewables at the Indian unit of CLP Holdings Ltd. (2), the largest owner of farms in India. Turbine makers such as Suzlon Energy Ltd. (SUEL) and Gamesa Corp Tecnologica SA (GAM), who count India among their top three markets, may raise prices, he said.

After a record 42 percent drop in installations in the 12 months through March, the industry is set to beat the U.S. for the first time this year after the government reintroduced a cash incentive in August. India, which is fighting to reduce blackouts that hold back economic growth, is seeking to cut dependence on imported fossil fuels and double clean energy capacity to about 57 gigawatts by 2017.
VIDEO: Indian Rupee Could Break 70 Per Dollar

"A rapidly falling rupee affects investor confidence in the Indian economy and is likely to impact our expansion plans," Makhija said. "Manufacturers who aren't hedged in the short-term could take the increased costs to customers over the next three to six months. Developers are also likely to be affected by growing inflation."

Yield Surge

The local currency dropped as much as 20 percent this year when it touched an all-time low of 68.845 a dollar on Aug. 28. Its 8.1 percent slide in August was the biggest monthly decline since March 1992, according to data compiled by Bloomberg.

A weaker currency inflates overseas debt when repaid with local earnings, increasing finance costs, while also boosting prices of imported components and other raw materials. The average yield for dollar debt of Indian companies jumped as much as 2.56 percentage points to a 19-month high of 6.32 percent on Aug. 22 from a record low reached on May 10, according to an index compiled by HSBC Holdings Plc.

The depreciation may hurt the industry at a time India is forecast to put up 2,050 megawatts of wind capacity in 2013, compared with 2,000 megawatts expected in the U.S., pipping the North American country for the first time, according to estimates from Bloomberg New Energy Finance. In 2014, that may rise to 2,300 megawatts, signaling a rebound.

So Steep

"If the rupee doesn't recover in the next couple of months, it will start impacting everything from turbine prices to interest rates, and thus project profitability," said Shantanu Jaiswal, a New Delhi-based BNEF wind analyst. "Nobody would've thought that the decline would be so steep."

Suzlon ceded its position as the top wind-turbine supplier in India for the first time in at least a decade last year as it struggled to repay debt accumulated from acquisitions. The company and its units had about $1.5 billion of debt denominated in the greenback and owe the equivalent of about 66 billion rupees in euros, data compiled by Bloomberg show.

The turbine maker, based in the western Indian city of Pune, is this year's worst-performing stock in the 98-member NEX index of clean-energy shares, having dropped 68 percent. Its shares were up 0.3 percent at 5.97 rupees as of 11:35 a.m. in Mumbai.

A weaker rupee, while posing some challenges to the industry, may help local manufacturers including Suzlon to compete in overseas markets, said Chairman Tulsi Tanti. Ramesh Kymal, head of Gamesa's local unit, didn't respond to an e-mail and phone call seeking comment.

"It has some positive aspects for a company like ours," Tanti said in an e-mailed response. "With significant manufacturing in India, this can translate to us being more competitive in U.S. and Europe."

More Competitive

The currency's slump may make wind energy more competitive against fossil fuel-based power, said Ravi Kailas, chairman of Mytrah Energy Ltd. (MYT), a developer backed by Henderson Global Investors Ltd. Wind farms don't have to deal with the long-term risk of rising fuel imports faced by coal and natural-gas fired plants, said Arvind Bansal, chief executive officer of Morgan Stanley-backed developer Continuum Wind Energy Pte.

"It has brought into focus the intrinsic competitiveness of wind energy," Bansal said. Both developers say all of their debt and revenue are in rupees and they don't expect delays.

India has installed 19,662 megawatts of wind power, according to the Ministry of New and Renewable Energy, about a fifth of the nation's estimated potential, BNEF's Jaiswal said.


Source:http://www.businessweek.com/n…

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