Launch Partners

Tuesday, October 4, 2022

Launch Partners

Cypark Ref SRI Sukuk: Future trajectory uncertain

Cypark Ref issued a 19-tranche SRI Sukuk worth RM550 million (US$125.43 million) in October 2019, which won the IFN Deal of the Year for the green project category in 2019. The Sukuk issuance is receiving renewed attention due to the volatile stock movements of Cypark Resources which fully owns Cypark Ref. RAM Ratings issued a reaffirmation of its ‘AA3/Negative’ rating on the 30th May 2022 to reassure Sukukholders amid the downward stock movement.

The Islamic medium-term notes (IMTNs) have a tenor of three to 22 years and were issued to finance the development of three 30 MWac solar photovoltaic projects. First proposed on the 26th July 2019 in an information memorandum, the offering features an innovative model.

What makes this issuance innovative is that it involves the securitization of vendor financing, where Cypark Ref, as the turnkey contractor, raised financing secured against the aggregation of deferred turnkey payments from three project companies.

This structure enabled Cypark to tap the debt capital market for the funding of three separate large-scale solar projects awarded by the Energy Commission of Malaysia. On their own, each of these three projects would have been considered suboptimal for bond or Sukuk issuances.

Together, the three solar projects (90 MW in total) are projected to reduce greenhouse gas emissions by approximately 2.4 million metric tons over 21 years.

With 19 years remaining to maturity, Cypark Ref circulated an extraordinary resolution notice to its Sukukholders on the 23rd May 2022 which included modifications to the transaction terms and payment structure. According to a bourse filing, the company expects the reaffirmed ‘AA3’ rating to give confidence to Sukukholders to support the proposed amendments in the extraordinary resolution favorably.

As Cypark Ref attempts to regain Sukukholders’ confidence, its parent company’s stock price hit a record low on the 25th May 2022 at 34 Malaysian sen (7.75 US cents). Razli Ismail, the chairman of Cypark Resources, has disposed of 7.26 million of his shares in the company, or a 1.22% equity stake, according to bourse filings. The group CEO has also been reducing stakes in the company, disposing of a 2.72% equity holding. Additionally, the Employees Provident Fund has also been downsizing its stakes, selling a 0.86% equity stake in the company since May, bourse filings confirmed.

While the innovative model of the Sukuk has received praise in the industry, the recent developments involving its parent company are raising concerns over the issuance’s long-term trajectory and potential solvency.

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