IREDA Perpetual Bonds Issue: Everything You Need to Know

Understanding Perpetual Bonds

The Indian Renewable Energy Development Agency (IREDA) recently made headlines by raising ₹453 crore through its perpetual bonds issue. This move highlights the growing trend among financial institutions and public sector enterprises to use perpetual instruments for long-term capital support. In this article, we’ll explore the details of IREDA’s perpetual bond issue, why companies issue such bonds, their features, and the associated risks—all in an educational context.

Perpetual bonds are a unique class of fixed-income instruments that do not have a maturity date. Unlike traditional bonds, where the issuer repays the principal after a set period, perpetual bonds pay interest (or coupons) indefinitely.

These instruments are often issued by banks or government-backed entities to strengthen their Tier I capital, as recognized under RBI and SEBI regulations. Investors receive periodic interest payments, while the principal remains with the issuer.

For example, a bank or financial institution may issue a perpetual bond to improve its capital adequacy ratio without taking on long-term repayment obligations.

About IREDA and Its Role in Renewable Energy Financing

IREDA, a Government of India enterprise under the Ministry of New and Renewable Energy (MNRE), plays a crucial role in financing renewable energy and energy efficiency projects across India.

As part of its growth and capital management strategy, IREDA has explored innovative fundraising instruments—such as perpetual bonds—to strengthen its capital base and continue supporting India’s clean energy transition.

Why Do Companies Issue Perpetual Bonds?

Companies—especially financial institutions and public sector enterprises—issue perpetual bonds for the following reasons:

1. Capital Adequacy and Regulatory Compliance

Perpetual bonds count as Additional Tier I (AT-1) capital, helping institutions meet regulatory capital requirements set by the Reserve Bank of India (RBI) or similar bodies.

2. No Obligation to Repay Principal

Since perpetual bonds don’t have a maturity date, issuers can retain the principal indefinitely while paying periodic interest, improving cash flow flexibility.

3. Investor Confidence and Long-Term Stability

Issuing perpetual bonds can demonstrate an issuer’s financial strength and commitment to long-term stability—important traits for both investors and regulators.

4. Support for Strategic Growth

In IREDA’s case, the proceeds will support renewable energy projects, aligning with India’s sustainability goals.

Risks of Perpetual Bonds

While perpetual bonds can be attractive to certain investors, they also carry distinct risks that must be carefully understood:

1. Credit Risk

The ability of the issuer to meet ongoing interest payments is crucial. If the issuer’s financial condition weakens, coupon payments may be deferred.

2. Interest Rate Risk

Since these bonds have no maturity date, rising market interest rates can lower their market value significantly.

3. Liquidity Risk

Perpetual bonds may not be as actively traded as traditional bonds, making it harder for investors to exit early.

4. Call Option and Coupon Discretion

Issuers may choose to call (redeem) the bond after a certain period or defer coupon payments—making them less predictable than conventional debt securities.

Are Perpetual Bonds Secured?

Typically, perpetual bonds are unsecured instruments, meaning they are not backed by specific assets. Investors rely solely on the issuer’s creditworthiness.

However, they often rank senior to equity but subordinate to secured debt in the event of liquidation. Therefore, it’s important to evaluate the issuer’s credit rating before investing in such instruments.

For example, IREDA’s strong government ownership and investment-grade credit rating can enhance investor confidence, but it does not eliminate inherent risks.

Market Perspective on IREDA’s Issue

IREDA’s successful perpetual bond issue demonstrates a robust appetite among institutional investors for high-quality, government-linked issuances in the renewable energy space.

The oversubscription rate of 2.69x indicates healthy participation, reflecting both IREDA’s credibility and broader market interest in green and sustainable financial instruments.

From a policy standpoint, such issuances help deepen India’s corporate bond market and mobilize capital for climate-focused initiatives.

Understanding the Broader Impact

The IREDA perpetual bond issue represents more than just a financial transaction—it marks a strategic milestone in India’s journey toward sustainable financing. By leveraging innovative instruments, government-backed entities can expand their reach in renewable energy, aligning with the National Green Hydrogen Mission and India’s net-zero 2070 goals.

Moreover, the participation of institutional investors highlights growing confidence in the long-term potential of green bonds and other sustainability-linked securities.

Conclusion

The IREDA perpetual bonds issue reflects a strong convergence of financial innovation and sustainability in India’s bond market. While these instruments offer potential advantages for issuers and investors alike, understanding their structure, risks, and purpose is essential.

For investors, perpetual bonds serve as an educational case study on how financial institutions raise capital and manage long-term obligations within regulatory frameworks.

Disclaimer

1. What are perpetual bonds?

Perpetual bonds are fixed-income instruments with no maturity date. Issuers pay periodic interest indefinitely without repaying the principal amount.

2. When was the IREDA perpetual bonds issue launched?

The issue was launched in September 2025, raising ₹453 crore and was oversubscribed 2.69 times.

3. Why did IREDA issue perpetual bonds?

IREDA issued perpetual bonds to strengthen its Tier I capital base and fund renewable energy projects in line with its clean energy objectives.

4. Are perpetual bonds risky?

Yes. They involve credit, liquidity, and interest rate risks. Issuers may also defer coupon payments under certain conditions.

5. Are perpetual bonds secured?

Generally, perpetual bonds are unsecured instruments, relying on the issuer’s credit strength rather than collateralized assets.