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Sunday, February 25, 2024

Launch Partners

Case study: Megah Capital’s US$120 million Islamic sustainability-linked financing

Treasury management company Megah Capital, a wholly-owned subsidiary of engineering and property infrastructure company Gamuda, signed a US$120 million Islamic sustainability-linked financing facility with OCBC Bank in late December 2022.

The financing is in line with Gamuda’s Gamuda Green Plan 2025 roadmap, particularly with regard to carbon emissions reduction. To finance general corporate purposes, the five-year commodity Murabahah-based facility involves an Islamic term financing facility and an Islamic cross-currency profit rate swap.

According to Tan Ai Chin, the managing director, senior banker and head of investment banking at OCBC Bank Malaysia, the facility seeks to hedge all payment obligations, including the net sustainability premium or discount for the relevant profit period, to match the natural currency of Gamuda, which is the Malaysian ringgit.

“During the year in 2022, the Malaysian market experienced four consecutive OPR [overnight policy rate] hikes. Ongoing engagement with the client was crucial to secure the right opportune window to manage the financial risks for the bank and the customer and to deliver competitive fixed financing rates amid a rapidly rising interest rate environment,” Tan told ISFI.

The facility features two sustainability key performance indicators, namely annual percentage reduction in Scope 1 and 2 greenhouse gas emissions intensity as well as the increase in cumulative usage of renewable energy for Gamuda Group’s operations in Malaysia.

While the profit rate for the facility is undisclosed, Megah Capital will see a reduction in the profit rate should it meet the specified sustainability performance targets (SPTs).

Tan shared that the facilities will have the effect of aligning the dual corporate goals of achieving value maximization and the realization of Gamuda’s ESG aspirations as a result of the SPTs and the alignment to the Gamuda Green Plan 2025 roadmap.

Gamuda was on the fringe of another landmark Islamic sustainable facility in October last year when Amanah Lebuhraya Rakyat (ALR) issued a RM5.5 billion (US$1.24 billion) 13-tranche sustainability Sukuk facility. The issuance completed the restructuring and refinancing of ALR’s acquisition of four highway concession companies, of which Gamuda was the largest shareholder.

Megah Capital’s Islamic Sustainability-Linked Financing

US$120 million


20th December 2022
Summary of terms and conditions
Aggregate principal amount
US$120 million
Type of facility
Islamic term financing facility, Islamic cross-currency profit rate swap
Structure
Commodity Murabahah via Tawarruq
Use of proceeds
General corporate purposes
Tenor
Five years
Profit rate/ yield
Undisclosed
Repayment
Bullet
Frequency of payment
Monthly
Governing law
Malaysian law
  • Companies in the Article
  • Gamuda

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