Islamic Issue, Malaysia Capital Markets Deal
Tadau Energy’s M$250m (US$59.2m) project sukuk may be small, but the multi-tranche financing had a big impact in the world’s biggest Islamic bond market.
The 15-tranche issue, priced in July 2017, was Malaysia’s first Green Islamic bond, and one of the world’s first project financings in the Green sukuk market. The deal advanced trends that are becoming increasingly important in the modern bond market, helping the transition towards environmentally-friendly financing models, connecting Islamic funds with sustainable and responsible investments, and giving infrastructure developers an alternative to bank financing. Proceeds from the Green sukuk will be used to build a 50MW large-scale solar project comprising two plants in Sabah.
Malaysia has set out its ambitions to expand its role as a hub for global Islamic financing to become a centre for Green and responsible Islamic investments, and Tadau Energy set the standard for many more to follow. Quantum Solar Park Semenanjung’s bigger M$1bn Green sukuk in September used a similar format, and interest is expected to build further as the government promotes solar power.
The principles of Islamic finance are closely aligned with sustainable and responsible investment, creating opportunities for further growth of sukuk in green finance. Tadau took advantage of this connection to issue the sukuk under the sharia principles of istisna, ijarah and ijarah mawsufah fi zimmah. Under the programme, the sukuk trustee acted on behalf of the bondholders to sign a number of agreements that spelt out terms and conditions for the sukuk.
Norway-based Center for International Climate and Environmental Research certified Tadau’s Green bond framework, giving it a “dark green” certification – the highest score on its environmental scale. Cicero said the sukuk provided a sound framework for climate-friendly investments that would support solar power development, a key technology supporting Malaysia’s transition to a low-carbon and climate-resilient society.
Risk mitigation came in the form of two 21-year power purchase agreements with Sabah Electricity, owned by the Malaysian state government of Sabah. The bonds are secured by, among others, a first-ranking legal assignment of the issuer’s rights, title and benefits in all permits and licences relating to the project.
The bonds were offered in 15 tranches of two to 16 years, paying coupons from 4.8% for the M$14m two-year piece to 6.2% for the M$10m 16-year piece. Affin Hwang Investment Bank was sole lead manager and underwriter for the deal, rated AA3 by RAM. It was also principal adviser, lead arranger and facility agent.
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