Azure Power Global | Another headwind for a major Caisse investment in India

Another tile falls on an Indian producer of renewable energy supported to the tune of around half a billion by the Caisse de depot et placement du Québec (CDPQ) – an investment that has melted like snow in the sun. The risk of default at Azure Power Global is now high, say two of the major rating agencies.

This recent warning from Moody’s and Fitch Ratings comes with a downgrade to the company, a move that is driving up its borrowing costs. A series of governance irregularities plagued Azure last summer, sending its stock plummeting on the New York Stock Exchange.

“The downgrade reflects our governance concerns over management’s inability to timely disclose financial information,” Fitch said. There is still a blur of unresolved internal controls at Azure […] on its overall performance and the financial flexibility of its entities. »

According to Fitch, a credit rating of “BB” – which was assigned to Azure – signifies “high vulnerability to default risk”, particularly if the economic environment continues to deteriorate. In the short term, the company is in principle able to meet its financial commitments.

The main shareholder of Azure with a 53.4% ​​stake, Quebecers’ woolen socks are not the only ones to suffer from the debacle of the renewable energy producer founded in 2008 and which is developing a solar energy platform in particular. in India. The Ontario Municipal Employees Retirement System (OMERS), the second largest shareholder (21.5%), also has hundreds of millions at stake. The two institutions each have a representative on the board of directors.

Skeletons in the closet

Azure’s stock market debacle gained momentum on August 29 with a 44% plunge. The surprise departure of the Chairman and CEO – who had only been in office for two months – had been announced in circumstances that are still unclear. The company had also revealed that it had received a complaint from a whistleblower a few months earlier about potential irregularities and misconduct by certain employees.

We still do not know the bottom of the story, which nevertheless caused a tumble of the title on Wall Street. At the current share price (US$4.15), the CDPQ’s investment is only worth US189 million. At its peak in January 2021, the company’s stock was worth more than US$50 on Wall Street.

After an analysis that began at the end of August, Moody’s also decided last week to lower the credit ratings of Azure entities, which vary between Ba2 and Ba3 – a category considered very speculative by the new agency. -yorker. She shares Fitch’s concerns.

“Governance risks weigh heavily in the balance,” writes Moody’s. The discount […] is due to internal governance issues that delayed the filing of audited financial statements, complaints that were not addressed, and senior management turnover. »

By email, the CDPQ did not want to comment, on Tuesday, on the reports from Moody’s and Fitch concerning Azure since it is a listed company on the stock exchange. OMERS did not respond to questions from The Press sent by email.

For sale

There is no more enthusiasm on the part of financial analysts. Maheep Mandloi of Credit Suisse is one of the few to follow Azure’s activities. In a report sent to his clients on January 13, the latter still recommends dropping the stock and lowers its target price to US$4 over a 12-month horizon.

“My recommendation remains unchanged as the company has yet to publish its annual report from last year, respond to a whistleblower’s complaint, and permanently appoint a new CEO.” he.

Mandloi adds that Azure still has until next August to produce the report and meet the requirements of the Securities & Exchange Commission – the stock market policeman in the United States – to raise capital through the stock market. The analyst warns that a delay beyond the third quarter this year will jeopardize the company’s growth and development plans.

Investing in Azure is precisely the type of investment that aligns with CDPQ’s climate strategy goals, including owning $54 billion in green assets by 2025 to actively contribute to a more sustainable economy.