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Thursday, May 30, 2024

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Case study: Solarvest’s debut sustainable Sukuk

Solarvest Holdings (Solarvest) issued RM60 million (US$12.7 million) in sustainability Sukuk as part of its debut issuance under its RM1 billion (US$211.65 million) Sukuk Wakalah program. The Malaysian solar energy company will use the majority of the Sukuk proceeds to finance the development of and investment in renewable energy assets.

The issuance includes a RM10 million (US$2.12 million) three-month issuance and a RM50 million (US$10.58 million) three-year issuance. According to Liew Kong Fatt, CFO of Solarvest, the debut issuance was relatively smooth sailing.

“The only part that we got feedback from our investors is that our issuance size is too small. They have liquidity issues.

“In the Sukuk market, players are talking about RM100 million (US$21.16 million) in issuance size, but ours is in the tens of millions region,” Liew told ISFI.

The company’s ability to raise debt is limited by its debt-to-equity ratio. As Solarvest is asset-light, it cannot afford to issue a larger facility, Liew explained.

While limited by its gearing, the CFO shared that Solarvest is looking to issue a similar amount of Sukuk next year.

Prior to the issuance of its debut offering, Davis Chong, CEO of Solarvest, told ISFI that it was expecting to secure a lower financing rate as the facility will be labeled. Its three-year Sukuk ultimately secured a 5.5% semi-annual financing rate.

RAM Ratings, which assigned the RM1 billion program a first-time rating of ‘A1’/Stable/P1’, also confirmed Solrvest’s relatively small capital-raising aspirations.

According to the rating agency, the company is looking to undertake RM141.4 million (US$29.93 million) in additional borrowings per annum in the coming four years.

Notably, the debut Sukuk issuance size was RM40 million (US$8.47 million) short of the RM100 million initial issuance amount that RAM Ratings’s first-time rating was premised upon.

While the size of the facility is on the smaller bound of the norm, Davis told ISFI that the labeled Sukuk issuance allows it to access a larger and more diverse pool of Islamic and conventional investors, including SRI funds that prioritize ESG criteria.

Solarvest’s Debut Sustainable Sukuk

RM60 million (US$12.7 million)


5th September 2023
Summary of terms and conditions
Issuer
Solarvest Holdings
Size of issue
RM60 million (US$12.7 million)
1. Islamic commercial paper (ICP): RM10 million (US$2.12 million)
2. Islamic medium-term note (IMTN): RM50 million (US$10.58 million)
Mode of issue
Private placement, tender
Purpose
To fund capital expenditure, working capital and the acquisition of projects, investments and assets.
Tenor
1. ICP: Three months
2. IMPN: Three years
Profit rate
1. ICP: –
2. IMTN: 5.5%
Payment
1. ICP: –
2. IMTN: Semi-annual
Currency
Malaysian ringgit
Maturity date
1. ICP: 30th August 2023
2. IMTN: 4th September 2026
Lead manager(s)
RHB Investment Bank
Principal advisor(s)
RHB Investment Bank
Governing law
Malaysian law
Legal advisor(s)/council
Zul Rafique & Partners acting on behalf of the principal advisor
Islamic structure
Wakalah Bi Istithmar, Murabahah via Tawarruq arrangement
Underlying asset
Shariah compliant assets
Rating
‘A1/Stable/P1’ preliminary rating by RAM Ratings
Shariah advisor(s)
RHB Islamic Bank

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